The Cambro Foundation, a nonprofit organization, is planning to invest $156,420

Question

The Cambro Foundation, a nonprofit organization, is planning to invest $156,420 in a project that will last for three years. The project will produce net cash inflows as follows: Year 1 $ 60,000

Year 2 $ 70,000

Year 3 ?

Click here to view Exhibit 13B-1 and Exhibit 13B-2, to determine the appropriate discount factor(s) using table.

   
Required:

Assuming that the project will yield exactly a 9% rate of return, what is the expected net cash inflow for Year 3?

choose numerator / choose denominator = cash flow

present value of year 3 cash inflow / present value factor = cash inflow

? 0.772 = ?

Click here to view Exhibit 13B-1 and Exhibit 13B-2, to determine the appropriate discount factor(s) using table.

Explanation / Answer

Calculation of Net Present Value of Cambro Foundation Year Cash outflow Net Cashinflows(increase in Revenue) Discount Factor (@8%) Discounted Cashflow 0 $                            1,56,420 1.000 $                                       -1,56,420 1 $                             60,000 0.917 $                                            55,046 2 $                             70,000 0.842 $                                            58,918 3 $                          1,14,746 0.772 $                                            88,605 Total Net Present Value $                                            46,148 Total discounted cashflow required to earn 9 % interest $ 156, 420 /0.772 $                                         2,02,568 Discounted cash flow for year 1 and year 2 $ 55,046 + $ 58,918 $                                         1,13,963 Discounted cash flow for year 3 $                                            88,605 Cash flow required in year 3 $ 88,605 /0.772 $                                         1,14,746

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