Calculate the present value of the following cash flows, rounding to the nearest

Question

Calculate the present value of the following cash flows, rounding to the nearest dollar:

a.A single cash inflow of $12,000 in five years, discounted at a 12% rate of return.

b.An annual receipt of $16,000 over the next 12 years, discounted at a 14% rate of return.

c.A single receipt of $15,000 at the end of Year 1 followed by a single receipt of $10,000 at the end of Year 3. The company has a 10% rate of return.

d.An annual receipt of $8,000 for three years followed by a single receipt of $10,000 at the end of Year 4. The company has a 16% rate of return

Explanation / Answer

Dep using SLN mehod = (Cost-Salvage)/life = (246000-0)/10 = 24,600 pa Net CF = 61500 Addback Dep written-off = 24,600 So Total CF = 61500+24600 = $86,100 pa a. Compute the average rate of return, giving effect to straight-line depreciation on the investment. Do not enter the percent sign. = 86100/246000 = 35% b. Compute the cash payback period. Cash PBP = Total Investment/Annual CF = 246000/86100 = 2.86 yrs c. Compute the net present value. Use the above table of the present value of an annuity of $1. Round to the nearest dollar. PV factote for $1 for 10 Yrs @10% = 6.145 Present value of annual net cash flows: $86100*6.145 = $529,085 Amount to be invested: 246000 Net present value: $529,085 -246,000 = $283,085

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