Suppose a firm is considering a three year project with NINV of 570,000. The pro

Question

Suppose a firm is considering a three year project with NINV of 570,000. The project is going to generate 286,000 the first year, and 195,000 the second year. The NPV is 76,573 and the required rate of return is 8.4%. What is the expected cash flow for the third year? Suppose a firm is considering a three year project with NINV of 570,000. The project is going to generate 286,000 the first year, and 195,000 the second year. The NPV is 76,573 and the required rate of return is 8.4%. What is the expected cash flow for the third year?

Explanation / Answer

Let x be the expected cash flow for third year. The NPV calculations are as follows:

The net present values can be equated as follows:
-140212.82 + 0.785077x = 76,573
0.785077x = 216785.8
x = 276133.3

Therefore, the expected cash flow for third year is $276,133.3

Year Cashflow PV factor @ 8.4% Present Value 0 -570000 1 -570000 1 286000 0.922509225 263837.6384 2 195000 0.85102327 165949.5377 3 x 0.785076818 0.785077x NPV -140212.82+0.785077x

Related Questions

Navigate

• Browse (All)
• Browse S
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.