The Cambro Foundation, a nonprofit organization, is planning to invest $219,125 in a project that will last for three years. The project will produce net cash inflows as follows:
Year 1 $ 76,000
Year 2 $ 88,000
Year 3 ?

Assuming that the project will yield exactly a 10% rate of return, what is the expected net cash inflow for Year 3?

Assuming that the Cambro Foundation's project yields exactly a 10% return, the expected net cash inflow for Year 3 is $77,308.

Data and Calculations:

Cost of investment = $219,125

Net Cash Inflows:

Year 1   $ 76,000

Year 2 $ 88,000

Year 3    ?

Rate of return = 10%

Exact return = $21,913 ($219,125 x 10%)

Total net cash inflow from project = $241,038 ($219,125 + $21,913)

Expected net cash inflow for Year 3 = $77,038 ($241,038 - $76,000 - $88,000)

Thus, the expected net cash inflow for Year 3 from the Cambro Foundation's project is $77,308.

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The expected net cash inflow for Year 3 is $98,950

Explanation:

The expected net cash inflow for Year 3 is

= (Initial investment + I Year return + II Year return) - (I year cash inflows +   II year cash inflows)

= ($219,125 +  $21,912.5 + $21,912.5) - (  $76,000 + $88,000) = $98,950

The expected net cash inflow for Year 3 is $98,950

explanation:

the contractual interest rate is the interest the borrower must pay and the interest the lender receives, or more simply, it is the interest rate stated on a bond whereas the market interest rate is “the investors demand for loaning funds”. therefore, bonds can either be sold at a premium, face value, or discount.

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