A company anticipates a taxable cash receipt of $20,000 in year 4 of a project. The company's tax rate is 30% and its discount rate is 14%. The present value of this future cash flow is closest to:

Question

Quizplus · Accepted Answer

To find the present value of the future cash flow, first calculate the after-tax cash flow: $20,000 * (1 - 0.30) = $14,000. Then, discount this amount back to the present value using the formula: PV = FV / (1 + r)^n, where FV is the future value, r is the discount rate, and n is the number of years. PV = $14,000 / (1 + 0.14)^4 ≈ $8,289.

A Company Anticipates a Taxable Cash Receipt of $20,000 in Year