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30 September, 12:42

A project is expected to produce cash flows of $12,800, $15,900, and $18,000 over the next 3 years, respectively. After 3 years, the project will be discontinued. What is this project worth today at a discount rate of 12.5 percent?

Select one:

A. $36,808.17

B. $35,758.00

C. $34,435.74

D. $35,201.76

E. $36,582.72

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Answers (1)
  1. 30 September, 12:57
    0
    The correct answer is Option (E).

    Explanation:

    According to the scenario, the given data are as follows:

    FV of 1st year = $12,800

    FV of 2nd year = $15,900

    FV of 3rd year = $18,000

    Discount rate = 12.5%

    So, we can calculate the present value by using following formula:

    PV = FV * (1 : (1+r) ^t

    So, by putting the value we get

    PV = $12,800 * 1 : (1 + 0.125) ^1 + $15,900 * 1 : (1 + 0.125) ^2 + $18,000 * 1 : (1 + 0.125) ^3

    PV = $12,800 * 1 : (1.125) ^1 + $15,900 * 1 : (1.125) ^2 + $18,000 * 1 : (1.125) ^3

    PV = $36,582.72
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