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3 years ago

McCann Co. has identified an investment project with the following cash flows.

Business

2 answers:

Vlada [557]3 years ago

8 0

Answer:

Present values @ 11%

Years Present Value

1 $775

2 $982

3 $1075

4 $1070

Present values @ 16%

Years Present Value

1 $741

2 $899

3 $942

4 $897

Present values @ 30%

Years Present Value

1 $662

2 $716

3 $669

4 $569

Explanation:

Cash flows that will be received in future do not have same value as today, because if received today there is an opportunity to reinvest it and get some return. For this reason we calculate the present value of future cash flow.

Discounting method is used to calculate the present values. using following formula of discounting we calculate the PV.

PV = FV / ( 1 + r )^n

Present values @ 11%

Years Cash Flows Discounting Present Value

1 $860 860 x ( 1 + 11%)^-1 $775

2 $1,210 1,210 x ( 1 + 11%)^-2 $982

3 $1,470 1,470 x ( 1 + 11%)^-3 $1075

4 $1,625 1,625 x ( 1 + 11%)^-4 $1070

Present values @ 16%

Years Cash Flows Discounting Present Value

1 $860 860 x ( 1 + 16%)^-1 $741

2 $1,210 1,210 x ( 1 + 16%)^-2 $899

3 $1,470 1,470 x ( 1 + 16%)^-3 $942

4 $1,625 1,625 x ( 1 + 16%)^-4 $897

Present values @ 30%

Years Cash Flows Discounting Present Value

1 $860 860 x ( 1 + 30%)^-1 $662

2 $1,210 1,210 x ( 1 + 30%)^-2 $716

3 $1,470 1,470 x ( 1 + 30%)^-3 $669

4 $1,625 1,625 x ( 1 + 30%)^-4 $569

As the discount rate increase the Present value of the cash flows decreases because of discounting factor.

Ugo [173]3 years ago

7 0

Answer:

The present value at 11% is $3,902.13,$3,479.85 at 16% and $2,615.57 at 30%

Explanation:

The present value formula is given as :

PV=FV/(1+r)^n

Where FV is the future value of cash flows such as the ones given in the question

r is the rate of return at 11%,16% and 30%

n is the applicable time horizon relevant to each of the cash flow.

Find attached spreadsheet for detailed calculations.

Download xlsx

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Answer:

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Answer:

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