Question

In: Accounting

Contrail Air Inc. runs a small drone manufacturing business. For this year, the company expects real...

Contrail Air Inc. runs a small drone manufacturing business. For this year, the company expects real net cash flow of $210,000. The company expects its cash flow to erode at a rate of 5% percent per year in perpetuity. The appropriate real discount rate for the company is 12% percent. Assume all cash flows received at the end of the year.

What is the present value of the cash flows?

Cash flow $210,000
Cash flow growth rate -5%
Required return 12%
$1,235,294.12
$(87,500.00)
$(35,000,000.00)
$3,000,000.00

Solutions

Expert Solution

Calculate present value of cash flow:

Present value of cash flow = 210000/0.12+0.05 = 1235294.12

So answer is a) $1,235,294.12

ekkarill92 answered 3 years ago
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