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Contrail Air Inc. runs a small drone manufacturing business. For this year, the company expects real...

Contrail Air Inc. runs a small drone manufacturing business. For this year, the company expects real net cash flow of $195,000. The company expects its cash flow to erode at a rate of 2% percent per year in perpetuity. The appropriate real discount rate for the company is 8% percent. Assume all cash flows received at the end of the year. What is the present value of the cash flows? Cash flow $195,000 Cash flow growth rate -2% Required return 8%

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Answer #1

Calculation of present value:

Present value of cashflows= cashflow/(required return-growth)

                                      = 195000/(0.08+0.02)

                                      =195000/0.10=$1950000

Present value of cashflows=$1950000

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