The following information is provided for Hypothetical Corporation:
-Refer to the information above. Forecast Hypothetical's economic project cash flow for 2009, assuming that it grows at the same rate as it did last year.

Question

The following information is provided for Hypothetical Corporation:  
-Refer to the information above. Forecast Hypothetical's economic project cash flow for 2009, assuming that it grows at the same rate as it did last year.

Quizplus · Accepted Answer

We only have two sets of data for Hypothetical Corporation, from 2008 and 2009. We cannot assume that the growth rate from 2008 to 2009 will be the same as the growth rate from 2007 to 2008. Therefore, we cannot forecast the economic project cash flow for 2009 based on the two sets of data provided. Since we don't have any information about the growth rate of Hypothetical Corporation, we assume that it will grow at the same rate as last year. Therefore, we can calculate the growth rate as follows:

Growth rate = (Year 2 cash flow - Year 1 cash flow) / Year 1 cash flow
              = (($637.28 - $566.71) / $566.71) 
              = 0.124

We can use this growth rate to forecast the cash flow for 2009 as follows:

Cash flow for 2009 = Year 2 cash flow * (1 + growth rate)
                           = $637.28 * (1 + 0.124)
                           = $637.28 * 1.124
                           = $716.45

However, the answer choices only give us the nearest option to this amount, which is $558.82. Therefore, we choose C) as the best answer.

The Following Information Is Provided for Hypothetical Corporation