Question

Valuation of assets   Using the information provided in the following​ table, find the value of each​ asset:

Asset	End of Year	Amount
A	1	3000	18%
	2	3000
	3	3000
B	1 through &inf;	300	15%
C	1	0	16%
	2	0
	3	0
	4	0
	5	30000
D	1 through 5	1900	13%
	6	8600
E	1	2000	13%
	2	3000
	3	5000
	4	7000
	5	4000
	6	1000

Answer 1

Valuation of Assets

The Value of an asset is the Present Value of the annual cash inflows

Value of Asset - A

Year	Annual Cash Inflow ($)	Present Value Factor at 18%	Present Value of Annual Cash Inflow ($)
1	3,000	0.84746	2,542.37
2	3,000	0.71818	2,154.55
3	3,000	0.60863	1,825.89
TOTAL			6,522.82

Value of Asset – A = $6,522.82

Value of Asset – B

If the cash flow is for the infinity period, then the value of an asset is calculated as follows

Value of Asset = Cash Flow / Required rate of return

= $300 / 0.15

= $2,000

Value of Asset – B = $2,000

Value of Asset - C

Year	Annual Cash Inflow ($)	Present Value Factor at 16%	Present Value of Annual Cash Inflow ($)
1	0	0.86207	0
2	0	0.74316	0
3	0	0.64066	0
4	0	0.55229	0
5	30,000	0.47611	14,283.39
TOTAL			14,283.39

Value of Asset – C = $14,283.39

Value of Asset - D

Year	Annual Cash Inflow ($)	Present Value Factor at 13%	Present Value of Annual Cash Inflow ($)
1	1,900	0.88496	1,681.42
2	1,900	0.78315	1,487.98
3	1,900	0.69305	1,316.80
4	1,900	0.61332	1,165.31
5	1,900	0.54276	1,031.24
6	8,600	0.48032	4,130.74
TOTAL			10,813.48

Value of Asset –D = $10,813.48

Value of Asset - E

Year	Annual Cash Inflow ($)	Present Value Factor at 13%	Present Value of Annual Cash Inflow ($)
1	2,000	0.88496	1,769.91
2	3,000	0.78315	2,349.44
3	5,000	0.69305	3,465.25
4	7,000	0.61332	4,293.23
5	4,000	0.54276	2,171.04
6	1,000	0.48032	480.32
TOTAL			14,529.19

Value of Asset –E = $14,529.19

NOTE

The Formula for calculating the Present Value Factor is is [1/(1 + r)ⁿ], Where “r” is the Discount Rate and “n” is the number of years.