Question:
(a) The future value (F) of a sum invested now can be calculated using the formula: F = P(1 + r)n
Required:
(i) Describe each of the other constituents in the formula above (i.e. P, r and n);
(ii) Determine the value (to the nearest $) after four years of $5,000 invested now at a compound rate of interest of 8% per annum.
(b) (i) Describe why cash flows are discounted in capital investment project appraisal.
(ii) Describe how the net present value is calculated and used in capital investment project appraisal.