Question

A laundromat is expected to produce regular annual cash flows of 36,011 dollars with the first regular cash flow expected later today and the last regular cash flow expected in 7 years from today. In addition to the regular cash flows of 36,011 dollars, the laundromat is also expected to produce an extra cash flow of 38,159 dollars in 7 years from today. The cost of capital for the laundromat is 15.01 percent. What is the value of the laundromat?

Answer 1

	Given that, first cash flow received today which mean received in year Zero and last cash flow received after 7 year from today means at the end of 7th year .
	We can compute value of laundromat by computing present value of future cash flow.
	Below table shows computation of present value .
	year	0	1	2	3	4	5	6	7
i	Regular Cash flow	36,011	36,011	36,011	36,011	36,011	36,011	36,011	36,011
ii	extra cash flow								38,159
iii=i+ii	Total cash flow	36,011	36,011	36,011	36,011	36,011	36,011	36,011	74,170
iv	PVIF @ 15.01%	1.0000	0.8695	0.7560	0.6573	0.5716	0.4970	0.4321	0.3757
v=iv*iii	Present value of cash flow	36,011.00	31,311.19	27,224.75	23,671.64	20,582.25	17,896.05	15,560.43	27,866.28	200,123.59
	Hence, valur of Laudromat = 200123.59