Find the Present Value of an Investment in Plant and Equipment

question 60

Multiple Choice

Find the present value of an investment in plant and equipment if it is expected to provide annual earnings of $21,000 for 15 years and to have a resale value of $40,000 at the end of that period.Assume a 10% rate and earnings at year end.The present value of 1 at 10% for 15 periods is .23939.The present value of an ordinary annuity at 10% for 15 periods is 7.60608.The future value of 1 at 10% for 15 periods is 4.17725.

• A)$159,728
• B)$169,303
• C)$185,276
• D)$324,576

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Definitions:

Terminal Value

An estimate of a project's or company's value at the end of a forecast period, extending beyond the period of explicit cash flow projections.

Non-Normal Cash Flows

Cash flow patterns that don't follow a regular, predictable pattern, often encountered in investment analysis.

MIRR

Modified Internal Rate of Return, a financial metric that accounts for the cost of capital and assumes positive cash flows are reinvested at a firm's reinvestment rate.

NPV

Net Present Value, a method used in capital budgeting to evaluate the profitability of an investment, calculating the present value of cash inflow minus the present value of cash outflow.