The Cambro Foundation, a nonprofit organization, is planning to invest $185,415
ID: 2495631 • Letter: T
Question
The Cambro Foundation, a nonprofit organization, is planning to invest $185,415 in a project that will last for three years. The project will produce net cash inflows as follows:
Click here to view Exhibit 13B-1 and Exhibit 13B-2, to determine the appropriate discount factor(s) using table.
Exhibit 13B-1:
Exhibit 13B-2:
Assuming that the project will yield exactly a 6% rate of return, what is the expected net cash inflow for Year 3? (Round discount factor(s) to 3 decimal places.)
The Cambro Foundation, a nonprofit organization, is planning to invest $185,415 in a project that will last for three years. The project will produce net cash inflows as follows:
Explanation / Answer
Calculation of expected net cash inflow for Year 3:
Given that the project will yield exactly a 6% rate of return
hence we can say that at 6% discount rate , net present value should be zero.
Let say expected net cash inflow for Year 3 are X
Year
Cash Flow (CF)
PVF (6%)
PV
= PV of $1
= CF*PVF
0
$ (185,415)
1.000
$ (185,415)
1
$ 55,000
0.943
$ 51,865
2
$ 67,000
0.890
$ 59,630
3
X
0.840
X * 0.840
NPV =
As we know NPV should be zero
Hence ,
X * 0.840 - 73920 =0
X * 0.840 = 73920
X = 73920 / 0.840
X= 88000
Hence we can say that :
Expected net cash inflow for Year 3 shall be $88000
Calculation of expected net cash inflow for Year 3:
Given that the project will yield exactly a 6% rate of return
hence we can say that at 6% discount rate , net present value should be zero.
Let say expected net cash inflow for Year 3 are X
Year
Cash Flow (CF)
PVF (6%)
PV
= PV of $1
= CF*PVF
0
$ (185,415)
1.000
$ (185,415)
1
$ 55,000
0.943
$ 51,865
2
$ 67,000
0.890
$ 59,630
3
X
0.840
X * 0.840
NPV =
As we know NPV should be zero
Hence ,
X * 0.840 - 73920 =0
X * 0.840 = 73920
X = 73920 / 0.840
X= 88000
Hence we can say that :
Expected net cash inflow for Year 3 shall be $88000