Question

Leno Industries runs a small manufacturing operation. For this fiscal year, it expects real net cash flows of $193,000. Leno is an ongoing operation, but it expects competitive pressures to erode its real net cash flows at 5 percent per year in perpetuity. The appropriate real discount rate for Leno is 11 percent. All net cash flows are received at year-end. What is the present value of the net cash flows from the company's operations?

Answer 1

Answer:

Present value = $173,873.70

Explanation:

Computation of present value of the net cash flows from the company's operations?

Net cash flows of $193,000

Real discount rate for Leno is 11 percent.

Table value = (1 / 1.11) = 0.9009

Present value = $193,000 x 0.9009 = $173,873.70