JayJay Limited estimated that the future cash outflows relating to settlement of warranty obligations would be as follows:
? In 1 year $40 000
? In 2 years $50 000
? In 3 years. $60 000.

A government rate for bonds with similar terms, is 6%. What is the present value of the total expected future cash outflow?

Question

JayJay Limited estimated that the future cash outflows relating to settlement of warranty obligations would be as follows:
?	In 1 year	$40 000
?	In 2 years	$50 000
?	In 3 years.	$60 000.

A government rate for bonds with similar terms, is 6%. What is the present value of the total expected future cash outflow?

Quizplus · Accepted Answer

To find the present value of the future cash outflows, the formula for present value of an annuity needs to be used.

PV = CF/(1+r)^n

where PV is the present value, CF is the cash flow, r is the interest rate, and n is the time period.

Using this formula for each cash outflow and then adding them together, the total present value is found to be $132,563. Therefore, the best choice is A.

JayJay Limited Estimated That the Future Cash Outflows Relating to Settlement