Question

What is the minimum cash flow that could be received at the end of year three to make the following project "acceptable?" Initial cost = $100,000; cash flows at end of years one and two = $35,000; opportunity cost of capital = 10 percent.

$30,000

$39,256

$29,494

$52,250

Answer 1

Present value of inflows=cash inflow*Present value of discounting factor(rate%,time period)

=35,000/1.1+35,000/1.1^2+Amount received at the end of year three/1.1^3

100,000=60743.8017+Amount received at the end of year three/1.1^3

Amount received at the end of year three=(100,000-60743.8017)*1.1^3

=$52250.