Question

Consider a company with the following reported net income (i.e. reported sales) and accounts receivable. Compute...

Consider a company with the following reported net income (i.e. reported sales) and accounts receivable. Compute the cash flows in each of the three years and report the NPV of these cash flows. Use a 8.5% discount rate. Assume Accounts Receivable in year 0 is $0.

Year 1 2 3
Net Income $836 $808 $767
Accounts Receivable $131 $222 $201
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Answer #1
Year 0 1 2 3 Total
Net Income 0 836 808 767
Account receivable 0 131 222 201
Change in receivables 131 91 -21
Cashflows 0 705 717 788
(836-131) (808-91) (767+21)
Discount factor at 8.5% 0.9217 0.8495 0.7829
Present value at 8.5%       649.77       609.06       616.93 1,875.76
So NPV of the cashflows are $1875.76
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