Exercise 13-12 Uncertain Cash Flows [LO13-4] The Cambro Foundation, a nonprofit

Question

Exercise 13-12 Uncertain Cash Flows [LO13-4] The Cambro Foundation, a nonprofit organization, is planning to invest $136,356 in a project that will last for three years. The project will produce net cash inflows as follows: Year 1 Year 2 Year 3 $45,000 $65,000 Click here to view Exhibit 138-1 and Exhibit 13B-2, to determine the appropriate discount factor(s) using table. Required: Assuming that the project will yield exactly a 7% rate of return, what is the expected net cash inflow for Year 3? (Round discount factor(s) to 3 decimal places.) Net cash inflow

Explanation / Answer

Let cash inflow of year 3 = x Years PVF @ 7% Cash inflow Present value of cash inflow 1 0.93       45,000       42,056 2 0.87       65,000       56,774 3 0.82 x 0.82x Total of present value of cash inflow 98830 + 0.82x PV of cash inflow = PV of cash outflow 98830 + 0.82x = $136,356 0.82x = $37,526 x = $37,526 / 0.82 x = $45,763.415

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