Cha Li Lao Company wants to purchase equipment with a 3-year useful life which is expected to produce cash inflows of $15000 each year for two years and $9000 in year 3. Woods has a 14% cost of capital and uses the following factors. What is the present value of these future cash flows? $\text { Present Value of } 1$
$\begin{array}{cc}
\text { Period } & 14 \% \
\hline 1 & {.88}\
2 & .77\
3&.67
\end{array}$

Question

Cha Li Lao Company wants to purchase equipment with a 3-year useful life which is expected to produce cash inflows of $15000 each year for two years and $9000 in year 3. Woods has a 14% cost of capital and uses the following factors. What is the present value of these future cash flows? $\text { Present Value of } 1$
$\begin{array}{cc}
\text { Period } & 14 \% \
\hline 1 &  {.88}\
2 & .77\
3&.67
\end{array}$

Quizplus · Accepted Answer

The present value of these future cash flows can be calculated by multiplying each year's cash inflow by the corresponding present value factor for a 14% cost of capital, then summing those values: $15000 \times .88 + 15000 \times .77 + 9000 \times .67 = 13200 + 11550 + 6030 = 30780.$

Cha Li Lao Company Wants to Purchase Equipment with a 3-Year