At the end of a five-year life,a company will dispose of an asset and recognize a gain of $6,000.If the company's cost of capital is 15 percent and its tax rate is 30 percent,what is the present value of the future cash flow?

Question

Quizplus · Accepted Answer

The present value of the future cash flow can be calculated using the formula PV = FV / (1 + r)^n, where PV is the present value, FV is the future value ($6,000), r is the discount rate (15% or 0.15), and n is the number of periods (5 years). The tax impact is not directly relevant to calculating the present value of the future cash flow, as the question asks for the present value of the gain before taxes. Therefore, PV = $6,000 / (1 + 0.15)^5 = $2,087.

At the End of a Five-Year Life,a Company Will Dispose