Question

Abacus Company has an opportunity to invest in a depreciable asset that will yield a net cash inflow of $30,000 per year for four years. Abacus’ desired rate of return is 10%. Based on this information, what is the present value of the investment opportunity (round to the nearest whole dollar)?

Answer 1

Answer:

Present Value of Investment Opportunity = $95,096

Explanation:

Net cash inflow = Cash inflow - cash outflow

Given that net cash inflow = $30,000 per month for 4 years

Rate of return = 10%

Present Value = $\frac{1}{(1+0.1)^{1} } X 30,000 + \frac{1}{(1+0.1)^{2} } X 30,000 + \frac{1}{(1+0.1)^{3} } X 30,000 + \frac{1}{(1+0.1)^{4} } X 30,000$

= $27,272.72 +$24,793.38 + $22,539.44 + $20,490.40

= $95,096 (rounded off to nearest dollar)

Present Value of Investment Opportunity = $95,096