Question

Consider P. Ltd, a one-asset firm with no liabilities. Assume that the asset will generate end-of-year...

Consider P. Ltd, a one-asset firm with no liabilities. Assume that the asset will generate end-of-year cash flows of $200 each year for two years and then will have zero value. The interest rate in the economy is 10% What is the total revenue for the second year?

200

210

220

400

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Answer #1

The answer would be $200 because the P. Ltd. has only single asset which generates cash flows and nothing is there provided which can be considered for calculating revenue of the company. Hence the cash flow generated by that available asset to be taken as Total Revenue for the Year. Here $200 cash flows are for each of two years hence the total revenue for the second year will be $200 also.
The interest rate of 10% can be considered for calculating the present value of the cash flows but it is irrelevant in case of revenues. Hence the only option for the amount to be taken as revenue is $200.

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