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

Quizplus · Accepted Answer

The present value of future cash outflows is calculated by discounting each cash flow back to the present value using the formula PV = FV / (1 + r)^n. For each year:  Year 1: $40,000 / (1 + 0.06)^1 = $37,736.85  Year 2: $50,000 / (1 + 0.06)^2 = $44,499.49  Year 3: $60,000 / (1 + 0.06)^3 = $50,326.11  Adding these gives a total present value of approximately $132,563.

JayJay Limited Estimated That the Future Cash Outflows Relating to Settlement