A project is expected to produce cash flows of $12,800, $15,900, and $18,000 over the next 3 years, respectively. After 3 years, the project will be discontinued. What is this project worth today at a discount rate of 12.5 percent?

Select one:

A. $36,808.17

B. $35,758.00

C. $34,435.74

D. $35,201.76

E. $36,582.72

The correct answer is Option (E).

Explanation:

According to the scenario, the given data are as follows:

FV of 1st year = $12,800

FV of 2nd year = $15,900

FV of 3rd year = $18,000

Discount rate = 12.5%

So, we can calculate the present value by using following formula:

PV = FV * (1 : (1+r) ^t

So, by putting the value we get

PV = $12,800 * 1 : (1 + 0.125) ^1 + $15,900 * 1 : (1 + 0.125) ^2 + $18,000 * 1 : (1 + 0.125) ^3

PV = $12,800 * 1 : (1.125) ^1 + $15,900 * 1 : (1.125) ^2 + $18,000 * 1 : (1.125) ^3

PV = $36,582.72