What would be the present value of an ending cash flow for a capital asset with...
What would be the present value of an ending cash flow for a
capital asset with an estimated salvage value of $30,000, which
required $5,000 to be tied up in increased inventory levels during
its life, if discounted at 7%, and the asset was expected to be
used for another ten years?
Homework Answers
Answer:
Project life is 10 years.
Ending (Terminal) cash flow = Salvage value + Recovery of working capital = 30000 + 5000 = $35,000
Ending cash flow correspond to Year 10
Discount rate given = 7%
Hence:
Present value of an ending cash flow = 35000 / (1 + 7%)^10 = $17,792.23
Present value of an ending cash flow = $17,792.23
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