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The Purple Lion Beverage Company expects the following cash flows from its manufacuring plant in Palau...

The Purple Lion Beverage Company expects the following cash flows from its manufacuring plant in Palau over the next 6 years:

Year 1= $100,000

Year 2= $20000

Year 3= $330,000

Year 4= $450,000

Year 5= $750,000

Year 6= $375,000

The CFO of the company believes that an appropriate annual interest rate on this investment is 4%. What is the present value of this uneven cash flow stream, rounded to the nearest whole dollar?

a) $450,000

b) $2025000

c) $1705489

d) $ 1675000

Solutions

Expert Solution

Ans C) $ 1705489

All the figures of Discounting factor have been taken from Present Value table.

Year Project Cash Flows (i) DF@ 4% (ii) PV of Project A ( (i) * (ii) )
0 0 1                                    -  
1 100000 0.962                           96,154
2 20000 0.925                           18,491
3 330000 0.889                        2,93,369
4 450000 0.855                        3,84,662
5 750000 0.822                        6,16,445
6 375000 0.790                        2,96,368
CASH INFLOW                     17,05,489

jeff jeffy answered 1 year ago
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