Capstone Crowns is considering a project that will produce cash inflows of $11,000 in year one, $24,000 in year two, and $36,000 in year three. What is the present value of these cash inflows if the company assigns the project a discount rate of 14 percent?

Question

Quizplus · Accepted Answer

To calculate the present value of future cash flows, we use the formula:

PV = CF1 / (1+r)^1 + CF2 / (1+r)^2 + CF3 / (1+r)^3

Where PV is the present value, CF is the cash flow for each year, and r is the discount rate.

Plugging in the numbers, we get:

PV = 11,000 / (1+0.14)^1 + 24,000 / (1+0.14)^2 + 36,000 / (1+0.14)^3
PV = 9,649.12 + 18,879.43 + 23,886.77
PV = 52,415.32

Therefore, the present value of the cash inflows is $52,415.32. The correct choice is C.

Capstone Crowns Is Considering a Project That Will Produce Cash