The Cambro Foundation, a nonprofit organization, is planning to invest $183,345
ID: 2540214 • Letter: T
Question
The Cambro Foundation, a nonprofit organization, is planning to invest $183,345 in a project that will last for three years. The project will produce net cash inflows as follows: Year 1 $62,000 Year 2 $71,000 Year 3 ?Assuming that the project will yield exactly a 10% rate of return, what is the expected net cash inflow for year 3? The Cambro Foundation, a nonprofit organization, is planning to invest $183,345 in a project that will last for three years. The project will produce net cash inflows as follows: Year 1 $62,000 Year 2 $71,000 Year 3 ?
Assuming that the project will yield exactly a 10% rate of return, what is the expected net cash inflow for year 3? Year 1 $62,000 Year 2 $71,000 Year 3 ?
Assuming that the project will yield exactly a 10% rate of return, what is the expected net cash inflow for year 3?
Explanation / Answer
At the rate of return of 10%:present value of inflows=183345
Present value of inflows=cash inflow*Present value of discounting factor(rate%,time period)
=62000/1.1+71000/1.1^2+x/1.1^3[where x=cash flow for year3]
183345=62000/1.1+71000/1.1^2+x/1.1^3
183345=115041.3223+x/1.1^3
Hence x=cash flow for year 3=(183345-115041.3223)*1.1^3
which is equal to
=$90912.20(Approx).