Question
You have an opportunity to invest in a business venture. It requires a $250,000 investment on January 1st. You will receive $70,000 in After-Tax Cash
You have an opportunity to invest in a business venture. It requires a $250,000 investment on January 1st. You will receive $70,000 in After-Tax Cash Flows per year on December 31st for 3 years.
At the end of 3 years, the project will be terminated, and all assets liquidated.
The net terminal value is $80,000.
Although the sum of all these cash receipts is $290,000, you realize that the Time Value of Money concept means that those future cash receipts are worth less in "today" dollars.
Therefore, for all investment opportunities, you use 10% to analyze the current (i.e., present) value of all future cash flows.
The Present Value factors at 10% are Yr 1 = 0.909, Yr 2 = 0.826, and Yr 3 = 0.751
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started