Cash flow (CF) is the change in the quantity of money that a company, institution, or person has. The phrase is used in finance to refer to the volume of money (currency) produced or spent over a specific period of time.
Alternative X is currently valued $ -77543.8, whereas Alternative Y is currently worth $ -74625.7. Alternative Y must be chosen. Here, the cash flow needs to be discounted as follows:
Discounted cash flow added together equals present value:
Alternative X's current value is equal to (-30000/(1+0.14)0)+(-14000/(1+0.14)1)+(-14000/(1+0.14)2)+(-14000/(1+0.14)3)+(-14000/(1+0.14)4)+(-13000/(1+0.14)5) = -77543.8.
-60000/(1+0.14)0)+(-6000/(1+0.14)1)+(-6000/(1+0.14)2)+(-6000/(1+0.14)3)+(-6000/(1+0.14)4)+(5500/(1+0.14)5) = -74625.7 is the present value of the alternative.
We must choose alternative Y since the present value of Y is negatively smaller than the present value of X. There are several kind of cash flow, therefore it's critical to comprehend what each one is. Any of the categories could be meant when someone mentions CF.
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