A factory costs $280,000. You forecast that it will produce cash inflows of $80,000 in year 1, $140,000 in year 2, and $220,000 in year 3. The discount rate is 12%. What is the value of the factory?

=$339,627.36

Step-by-step explanation:

PV = FV/(1+R)^n

where

PV = Present Value

FV = Future Value

R = Rate

n = number of periods

PV

Year 1=$80,000

Year 2=$140,000

Year 3=$220,000

r=12%=0.12

Year 1:

PV=80,000 / (1+0.12)^1

=80,000 / 1.12

=$71,428.57

Year 2:

PV=140,000 / (1+0.12)^2

=140,000 / (1.12)^2

=140,000 / 1.2544

=$111,607.14

Year 3:

PV=220,000 / (1+0.12)^3

=220,000 / (1.12)^3

=220,000 / 1.404928

=$156,591.65

Value of the factory= 71,428.57 + 111,607.14 + 156,591.65

=$339,627.36