McClary Tires plans to save $20,000, $25,000, $27,500, and $30,000 at the end of each year for Years 1 to 4, respectively. If it earns 3.3 percent on its savings, how much will the firm have saved at the end of Year 4

Answer: $107,130.78

Explanation:

Given the following;

Cash flow (CF)

CF1 $20,000

CF2 $25,000

CF3 $27,500

CF4 $30,000

Discount rate (r) = 3.3% = 0.033

Taking the cash for each year and finding the future value using the formula

FV = CF * (1 + r) ^n

WHERE

FV = future value

CF = Cashflow

r = interest rate = 0.033 for all 4 years

t = Time (0 to 3)

FV = (CF1 * (1+r) ^3) + (CF2 * (1+r) ^2) + (CF2 * (1+r) ^1) + CF3

FV = $20,000 * (1.033) ^3 + $25,000 * (1.033) ^2 + $27,500*1.033 + $30,000

FV = $22046.05874 + $26677.225 + $28407. 50 + $30000 = $107,130.78

Total = $107,130.79

Explanation:

Giving the following information:

McClary Tires plans to save $20,000, $25,000, $27,500, and $30,000 at the end of each year for Years 1 to 4, respectively.

The discount rate is 3.3%.

To calculate the future value, we need to use the following formula for each cash flow:

FV = PV * (1+i) ^n

Cf1 = 20,000*1.033^3 = 22,046.06

Cf2 = 25,000*1.033^2 = 26,677.23

Cf3 = 27,500*1.033 = 28,407.5

Cf4 = 30,000

Total = $107,130.79