The Cambro Foundation, a nonprofit organization, is planning to invest $174,843

Question

The Cambro Foundation, a nonprofit organization, is planning to invest $174,843 in a project that will last for three years. The project will produce net cash inflows as follows:          Year 1 $ 74,000   Year 2 $ 87,000   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 8% rate of return, what is the expected net cash inflow for Year 3? (Round discount factor(s) to 3 decimal places.)

Explanation / Answer

Present value of inflows=cash inflow*Present value of discounting factor(rate%,time period)

174843=74000/1.08+87000/1.08^2+x/1.08^3[where x=cash flow for year3]

174843=(74000*0.926)+(87000*0.857)+(x*0.794)

Hence x=(174843-143083)/0.794

which is equal to

=$40,000.=cash flow for year 3.

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