The net cash flows of Advantage Leasing for the next 3 years are $42,000, $49,000 and $64,000 respectively, after which the grow

Question

2 years ago

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The net cash flows of Advantage Leasing for the next 3 years are $42,000, $49,000 and $64,000 respectively, after which the grow

th rate will be a constant 2% with a WACC of 8%. What is the present value of the terminal value?Select one:a. 51,822b. 55,967c. 59,259d. 60,444e. None of these

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1 answer:

liberstina [14] · Answer 1 · 2022-03-25T03:11:16+03:00

Answer:

$863,689.50

Explanation:

The computation of the present value of the terminal value is shown below:

The terminal value at the end of the third year is

= Third year Cash flows × (1 + growth rate) ÷ (required rate of return - growth rate)

= $64,000 × (1 + 2%) ÷ (8% - 2%)

= $1,088,000

Now its present value is

= terminal value at the end of the third year ÷ (1 + rate of interest)^number of years

= $1,088,000 ÷ (1 + 8%)^3

= $863,689.50

This is the answer but the same is not provided in the given options