A 3-year project is expected to produce a cash flow of $82,400 in the first year and $148,600 in the second year. The project ha

Question

3 years ago

7

s a present value of $303,764.34 at a discount rate of 12.75 percent. What is the expected cash flow in the third year of the project

1 answer:

givi [52] · Answer 1 · 2022-05-09T04:17:16+03:00

Answer:

$163,100

Explanation:

First find the present value of cashflows at year 1 and 2

PV = FV/(1+r)^n

PV = 82,400/(1.1275)^1

PV = $73082.0399

PV = FV/(1+r)^n

PV = 148,600 /(1.1275)^2

PV = $116,892.2473

From the cumulative present value of 303,764.34, find the balance after deducting the above PVs;

PV of cashflow yr3 = $303,764.34 -$73082.0399 -$116,892.2473

PV of cashflow yr3 = $113,790.053

Next, calculate year 3's cashflow;

Year 3 cashflow = 113790.053(1.1275)^3

Year 3 cashflow = $163,099.996

Expected cashflow in third year is approximately $163,100