Candy Limited expected future cash flows from the use of equipment as follows: End of Year 1 $4000; End of Year 2 $5000; End of Year 3 $2000. The discount rate was determined as 5%. The value in use of the equipment is:
A) $10 073.
B) $10 576.
C) $11 000.
D) $11 550.

Question

Quizplus · Accepted Answer

The value in use is the present value of future cash flows. Calculating: Year 1: $4000 / (1+0.05)^1 = $3809.52; Year 2: $5000 / (1+0.05)^2 = $4535.14; Year 3: $2000 / (1+0.05)^3 = $1728.48. Total = $3809.52 + $4535.14 + $1728.48 = $10,073.14.

Candy Limited Expected Future Cash Flows from the Use of Equipment