Calculator Use
Calculate the future value of a series of cash flows. More specifically, you can calculate the future value of uneven cash flows (or even cash flows).
- Interest Rate (discount rate per period)
- This is your expected rate of return on the cash flows for the length of one period.
- Compounding
- If there is compounding, this is number of times compounding will occur during a period. 1 is the minimum.
- Cash Flows at Period Beginning or End
- Choose whether cash flows occur at the beginning of each period (like an annuity due; in advance) or at the end of each period (like an ordinary annuity; in arrears)
- Periods
- This is the frequency of the corresponding cash flow. These are often the equivalent time period of months or years but a period can be any repeating time unit that payments are made.
- Cash Flows
- The cash flow (payment or receipt) made for a given period or set of periods.
Future Value of Cash FlowFormulas
The future value, FV, of a series of cash flows is the future value, at future time N (total periods in the future), of the sum of the future values of all cash flows, CF.
We start with the formula for FV of a present value (PV) single lump sum at time n and interest rate i,
\( FV=PV(1+i)^n \)
Substituting cash flow for time period n (CFn) for PV, interest rate for the same period (in), we calculate future value for the cash flow for that one period (FVn),
\( FV_{n}=CF_{n}(1+i_{n})^n \)
If our total number of periods is N, the equation for the future value of the cash flow series is the summation of individual cash flows:
\( FV=\sum_{n=0}^{N}CF_{n}(1+i_{n})^{N-n} \)
For example, i = 4% = 0.04, compounding once per period, for period n = 5, CF = 500 at the end of each period, for a total number of periods of 7,
Therefore,
FV5 = CF5 * (1 + in)7-5
FV5 = 500 * (1 + 0.04)2
FV5 = 500 * (1.04)2
FV5 = 500 * 1.0816
FV5 = 540.80
When cash flows are at the beginning of each period there is an additional period required to bring the value forward to a future value. Therefore, an additional (1 + in) is present in each cash flow multiplication.
With compounding m times per period we arrive at in and n by setting r as the periodic rate and t as the period number to calculate in = r/m and n = mt; we can now calculate the PV starting with the future value formula
\( FV=PV(1+\frac{r}{m})^{mt} \)
Calculating the FV for each cash flow in each period you can produce the following tableand sum up the individual cash flows to get your final answer.Note that since we want to know the future value at the end of the 7th period, the future value is unchanged from the cash flow of $700.
Cash Flow Stream Detail
Period
Cash Flow
Future Value
FAQs
FV=C0 * (1+r)n
Whereby, C0 = Cash flow at the initial point (Present value) r = Rate of return. n = number of periods.
How do you determine the future worth of the cash flows? ›
Future Value = Principal × (1 + interest rate)time. In this formula, 'Principal' represents each cash flow amount, 'interest rate' is the given periodic rate (assuming it is compounded once per year), and 'time' is the number of periods from now until the cash flow is received.
How to calculate present value of future cash flows? ›
PV = C / (1 + r) n
- C = Future cash flow.
- r = Discount rate.
- n = Number of periods.
The future value formula is FV = PV× (1 + i) n. It answers questions like, How much will $X invested today at some interest rate and compounding period be worth at time Y?
How do you manually calculate FV? ›
For example, assume we have $1,000 today and we invest it at 5% for one year. In one year, we will have $1,050.00. In this simple example, the future value is calculated as the present value*(1+the interest rate), or 1000*(1.05). If we made the same investment for two years, the future value would be $1,102.50.
What is an example of FV? ›
If a $1,000 investment is held for five years in a savings account with 10% simple interest paid annually, the FV of the $1,000 equals $1,000 × [1 + (0.10 x 5)], or $1,500.
How to calculate future free cash flows? ›
Free Cash Flow = Cash from Operations – CapEx
Free cash flow is one measure of a company's financial performance. It shows the cash that a company can produce after deducting the purchase of assets such as property, equipment, and other major investments from its operating cash flow.
What is the future value of $1000 after 5 years at 8% per year? ›
Answer and Explanation: The future value of a $1000 investment today at 8 percent annual interest compounded semiannually for 5 years is $1,480.24.
How do you estimate future cash flows? ›
How to calculate projected cash flow
- Find your business's cash for the beginning of the period. ...
- Estimate incoming cash for next period. ...
- Estimate expenses for next period. ...
- Subtract estimated expenses from income. ...
- Add cash flow to opening balance.
Cash Flow Forecast = Beginning Cash + Projected Inflows – Projected Outflows = Ending Cash.
Present and Future Value of Cash Flow
The future value of a lump-sum of money is calculated using the formula FV = PV(1+i)^n. In this formula, FV is the future value, PV is the lump sum, i is the rate at which it grows, and n is the number of periods into the future.
What is the future value of the cash flows? ›
The future value, FV , of a series of cash flows is the future value, at future time N (total periods in the future), of the sum of the future values of all cash flows, CF. When cash flows are at the beginning of each period there is an additional period required to bring the value forward to a future value.
What is the formula for cash flow projection? ›
The projected cash flow formula is Projected Cash Flow = Projected Cash Inflows – Projected Cash Outflows. It calculates the anticipated net cash flow by subtracting projected expenses from projected revenues, considering all sources of inflows and outflows.
What is the formula for the future value of a single cash flow? ›
FV = PV * (1 + r)^N
Drawing a timeline can help clarify the situation and make solving time value of money problems easier. In this case, the investment period (N) is 3 years, and the annual interest rate (r) is 8%. Plug the values into the formula to find the answer.
