Tangerine Inc. is evaluating a capital project for investment. The initial cash outflow in Year 0 is $1,500 followed by cash inflow of $500 each year for four years. Which of the following is the terminal value of the project? Assume the required rate of return is 12%. (Round off the answer to two decimal places.)

Question

Quizplus · Accepted Answer

To calculate the terminal value of the project, we need to find the present value of all cash inflows in Year 5 (since the cash inflows are expected to continue for only 4 years).

PV of Year 5 cash inflow = FV / (1+r)^n 
where r = required rate of return, n = number of years, and FV = future value

FV of Year 4 cash inflow = $500 
PV of Year 5 cash inflow = $500 / (1+12%)^1 = $446.43

Therefore, the terminal value of the project is the PV of the Year 5 cash inflow:

Terminal value = PV of Year 5 cash inflow = $446.43

Hence, the best choice is C.