At the end of a five-year life, a company will dispose of an asset and recognize...

At the end of a five-year life, a company will dispose of an asset and recognize a gain of $6,000. If the company's cost of capital is 15 percent and its tax rate is 30 percent, what is the present value of the future cash flow?

a. $14,078

b. $6,000

c. $2,087

d. $895

Solutions

Expert Solution

	Present value of the future cash flow	FV×(1÷(1+r)^n)

	Here,

A	rate per annum	15.00%
B	Number of years	5
C	Number of compoundings per per annum	1
A÷C	rate per period ( r)	15.00%
B×C	Number of periods (n)	5
	Cash flows value in 2 years (FV)	$ 4,200	=6000*(1-30%)

	Present value of the future cash flow	$ 2,087
		4200×(1÷(1+15%)^5)

ekkarill92 answered 1 year ago

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