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26 February, 21:27

Global Shippers Inc. has forecast earnings of $1,233,600, $1,345,900, and $1,455,650 for the next three years. What is the future value of these earnings if the firm's opportunity cost is 13 percent?

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  1. 27 February, 00:15
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    Given:

    Annuity amount in year 1, A1 = $1,233,600

    Annuity amount in year 2, A2 = $1,345,900

    Annuity amount in year 3, A3 = $1,455,650

    Rate, r = 13%

    The equation for the future value of an ordinary annuity is the sum of the geometric sequence:

    Future value, FV = A (1 + r) ^0 + A (1 + r) ^1 + ... + A (1 + r) ^n-1

    FVOA = A3 (1 + r) ^0 + A2 (1 + r) ^1 + A1 (1 + r) ^2

    Inputting values,

    = $1,233,600 * 1.13^2 + $1,345,900 * 1.13^1 + $1,455,650 * 1.13^0

    = $4551700.84

    = $4551701
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