Smart Solutions Inc. is evaluating a capital project for expansion. The project costs $10,000 and it is expected to generate $5,000 per year for three years. If the required rate of return is 10%, what is the terminal value of the project?

Question

Quizplus · Accepted Answer

The terminal value is calculated by finding the future value of the cash flows at the end of the project. The future value of $5,000 received each year for three years at a 10% rate is $5,000 * (1.1^2 + 1.1^1 + 1.1^0) = $16,550.