Bella Limited expected future cash flows from the use of equipment as follows: end of year 1 $1500; end of year 2 $4500; end of year 3 $7000.The discount rate was determined as 8%.The value in use of the equipment is:
A)$10 804.
B)$12 037.
C)$13 000.
D)$14 040.

Question

Quizplus · Accepted Answer

The value in use of the equipment is the present value of the future cash flows, which is calculated as follows:PV = $1500 / (1 + 0.08)^1 + $4500 / (1 + 0.08)^2 + $7000 / (1 + 0.08)^3PV = $1500 / 1.08 + $4500 / 1.1664 + $7000 / 1.2597PV = $1388.89 + $3855.44 + $5560.00PV = $10 804.33

Bella Limited Expected Future Cash Flows from the Use of Equipment