Use the following table, A company has a minimum required rate of return of 10%. It is considering investing in a project that requires an investment of $210,000 and is expected to generate cash inflows of $90,000 at the end of each year for three years. The present value of future cash inflows for this project is
A) $210,000.
B) $223,830.
C) $246,210.
D) $13,830.

Question

Use the following table,  A company has a minimum required rate of return of 10%. It is considering investing in a project that requires an investment of $210,000 and is expected to generate cash inflows of $90,000 at the end of each year for three years. The present value of future cash inflows for this project is
A) $210,000. 
B) $223,830. 
C) $246,210. 
D) $13,830.

Quizplus · Accepted Answer

To calculate the present value of future cash inflows, we need to use the formula:
PV = CF / (1 + r)n
where PV is the present value, CF is the cash flow, r is the required rate of return, and n is the number of periods.
In this case, we have:
CF = $90,000
r = 10%
n = 3
Using the formula, we can calculate the present value of each cash flow:
PV1 = $90,000 / (1 + 0.10)1 = $81,818.18
PV2 = $90,000 / (1 + 0.10)2 = $74,380.17
PV3 = $90,000 / (1 + 0.10)3 = $67,618.33
Then we add up the present values:
PV = PV1 + PV2 + PV3 = $223,816.68
Therefore, the present value of future cash inflows for this project is $223,830 (rounded to the nearest dollar). The best choice is B.

Use the Following Table, a Company Has a Minimum