Spiritlight Ventures is considering the following investment: $$\begin{array} { l r }
\text { Investment } & \$ 140,000 \
\text { Annual revenues } & \$ 96,000 \
\text { Annual variable costs } & \$ 32,000 \
\text { Annual fixed out-of-pocket costs } & \$ 20,000 \
\text { Salvage value } & \$ 12,000 \
\text { Discount rate } & 12 \% \
\text { Expected life of project } & 8 \text { years }
\end{array}$$
Ignore income taxes. The present value of the annual cash flow (rounded) is

Question

Spiritlight Ventures is considering the following investment: $$\begin{array} { l r } 
\text { Investment } & \$ 140,000 \
\text { Annual revenues } & \$ 96,000 \
\text { Annual variable costs } & \$ 32,000 \
\text { Annual fixed out-of-pocket costs } & \$ 20,000 \
\text { Salvage value } & \$ 12,000 \
\text { Discount rate } & 12 \% \
\text { Expected life of project } & 8 \text { years }
\end{array}$$
Ignore income taxes. The present value of the annual cash flow (rounded) is

Quizplus · Accepted Answer

The annual cash flow is calculated as revenues minus variable and fixed costs: $96,000 - $32,000 - $20,000 = $44,000. The present value of an annuity formula is used to calculate the present value of these cash flows over 8 years at a 12% discount rate. The present value factor for an 8-year annuity at 12% is approximately 4.9676. Thus, $44,000 * 4.9676 = $218,592.

Spiritlight Ventures Is Considering the Following Investment Ignore Income Taxes