Financial ManagementQuestion 5550 of 217
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3. What is the Discounted Cash Inflow after Taxes for the Year 1, Year 2 and Year 3 of the investment proposal ?

Options

A` 1,49,985, ` 1,61,483, ` 2,66,605
B` 1,36,350, ` 1,52,810, ` 2,59,095
C` 1,54,530, ` 1,56,940, ` 2,55,340
D` 1,45,440, ` 1,58,179, ` 2,51,585
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Correct Answer

Option D` 1,45,440, ` 1,58,179, ` 2,51,585

All Options:

  • A` 1,49,985, ` 1,61,483, ` 2,66,605
  • B` 1,36,350, ` 1,52,810, ` 2,59,095
  • C` 1,54,530, ` 1,56,940, ` 2,55,340
  • D` 1,45,440, ` 1,58,179, ` 2,51,585

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Detailed Solution & Explanation

Correct Answer: Option **D** Explanation: To calculate the Discounted Cash Inflow after Taxes for Year 1, Year 2, and Year 3, we multiply the Cash Inflow after Taxes (CFAT) of each year by the corresponding Present Value (PV) factor at the cost of capital of 10%.
\\text{Discounted CFAT} = \\text{CFAT} \\times \\text{PV Factor at 10\\%}
The PV factors are given in the problem as:
- Year 1: 0.909\displaystyle 0.909
- Year 2: 0.826\displaystyle 0.826
- Year 3: 0.751\displaystyle 0.751
* **For Year 1:**
* CFAT = 1,60,000\displaystyle ` 1,60,000 (from Question 2)
* textDiscountedCFATtextYear1=1,60,000times0.909=1,45,440\\text{Discounted CFAT}_{\\text{Year 1}} = 1,60,000 \\times 0.909 = 1,45,440
* **For Year 2:**
* CFAT = 1,91,500\displaystyle ` 1,91,500 (from Question 2)
* textDiscountedCFATtextYear2=1,91,500times0.826=1,58,179\\text{Discounted CFAT}_{\\text{Year 2}} = 1,91,500 \\times 0.826 = 1,58,179
* **For Year 3:**
* CFAT = 3,35,000\displaystyle ` 3,35,000 (from Question 2)
* textDiscountedCFATtextYear3=3,35,000times0.751=2,51,585\\text{Discounted CFAT}_{\\text{Year 3}} = 3,35,000 \\times 0.751 = 2,51,585
Therefore, the Discounted Cash Inflow after Taxes for Year 1, Year 2, and Year 3 are 1,45,440\displaystyle ` 1,45,440, 1,58,179\displaystyle ` 1,58,179, and 2,51,585\displaystyle ` 2,51,585 respectively.
Hence, **Option D** is the correct answer.

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