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8 June, 21:55

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?

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  1. 8 June, 22:17
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    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
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