Question

assume that a firm will generate the following cash flows. (ignore liquidation value and initial investment.) also assume that the interest rate you would receive on an alternative investment of equal risk is 10%. end of year 1: $110 end of year 2: $242 end of year 3: $133.10 what is the value of the firm based on these cash flows

Answer 1

$400

Step-by-step explanation:

To find the value of the firm based on the cash flows, we have to find the present value of the cash flows

Present value is the sum of discounted cash flows

Cash flow in year 1 = $110

Cash flow in year 2 = $242

Cash flow in year 3 = $133.10

I = 10%

Present value = $400

To find the NPV using a financial calculator:

1. Input the cash flow values by pressing the CF button. After inputting the value, press enter and the arrow facing a downward direction.

2. after inputting all the cash flows, press the NPV button, input the value for I, press enter and the arrow facing a downward direction.

3. Press compute