Precision Ltd is considering an equipment that costs $176,000, and is depreciated on a straight-line basis to zero over its 11-year useful life. The equipment is expected to be used in a 7- year project. Precision Ltd believe that at the end of the project (i.e. year 7), the company can sell the equipment for $22,000. If the tax rate is 30%, what is the net cash flow from the sale of this equipment in year 7?

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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.