Tangerine inc. is evaluating a capital project for investment. the initial cash outflow in year 0 is $1,500 followed by cash inflow of $500 each year for four years. which of the following is the terminal value of the project? assume the required rate of return is 12%. (round off the answer to two decimal places.) a. $1,889.45 b. $1,626.57 c. $3,336.78 d. $2,486.23 e. $2,389.66

Terminal value

= 500(1+0.12)3 + 500(1+0.12)2 + 500(1+0.12)1+ 500(1+0.12)0

= 500(1.12)3 + 500(1.12)2 + 500(1.12)1 + 500(1.12)0

= 702.464 + 627.2 + 560 + 500

= $2,389.66

The correct answer is E

Explanation:

Terminal value is a function of number of years cashflow for each year can be re-invested at the appropriate discount rate. The cashflow for year 1 can be re-invested for 3 years since the life of the project is 4 years. cashflow for year 2 can be re-invested for 2 years, cashflow for year 3 can be re-invested for 1 year and cashflow for year 4 can be re-invested for 0 year.

turnover

the amount of money taken by a business in a particular period.