Capstone Investments is considering a project that will produce cash inflows of $11,000 at the end of Year 1,$24,000 in Year 2,and $36,000 in Year 3.What is the present value of these cash inflows at a discount rate of 12 percent?

Question

Quizplus · Accepted Answer

We can use the formula for the present value of an annuity to calculate the present value of these cash inflows:

PV = CF1 / (1+r)^1 + CF2 / (1+r)^2 + CF3 / (1+r)^3
PV = 11,000 / (1+0.12)^1 + 24,000 / (1+0.12)^2 + 36,000 / (1+0.12)^3
PV = 11,000 / 1.12 + 24,000 / 1.2544 + 36,000 / 1.4049
PV = 9,821.43 + 19,129.39 + 25,627.34
PV = 54,578.17

Therefore, the present value of these cash inflows at a discount rate of 12 percent is $54,578.17. The best choice is C.

Capstone Investments Is Considering a Project That Will Produce Cash