Question

A project is expected to produce cash flows of $48,000, $39,000, and $15,000 over the next three years, respectively. After three years, the project will be worthless. What is the present value of this project if the applicable discount rate is 15.25 percent?

Answer 1

Answer:

$80,809.09

Explanation:

Present value of the cash flows = ∑(Cash flow × Present value factor)

Present value factor = (1 + r)⁻ⁿ

Here,

r is the discount rate = 15.25% = 0.1525

n is the year of cash flow

thus,

Year            n            Cash flow                PVF              Present value

Year 1          1          $48,000                0.86768            $41,648.59

Year 2         2          $39,000               0.75287            $29,361.80

Year 3         3          $15,000                 0.65325            $9,798.70

=============================================================

Present value of the project = $41,648.59 + $29,361.80 + $9,798.70

= $80,809.09