3. Aninvestment opportunity has projected costs and revenues as shown on the diagram in thousands of dollars. Year 2 3 4 Revenue $ 200 $ 250 $ 575 $ 600 $ 600 $ 600 Costs -$ 450 -$ 300 -$ 450 -$ 225 -$150 -$ 150 - $250 The investor's minimum rate of return is 12% compounded annually. Calculate the project before-tax cash flow and then determine the ROR, NPV, PI, and Growth ROR forthe project

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A:

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Present Value

Present value (PV) is defined as the current or present value of all future sums of cash flow or money at a specified rate of return. This rate of return is known as the discounted rate, which is essentially the interest rate, discounted over some time. The expected cash flows are discounted at a discount rate to compute the present value. The higher the discount rate, the higher the future value (FV), but the lower the present value.