A oiece of machinery used in an offshore oil rig is projecte

A oiece of machinery used in an offshore oil rig is projected to have a ternminal value at the end of the five years of $300,000. Using a hurdle rate of 15%, what is its value today?

Solution

Calculation of Present value of Machinary

Value today = FV * ( 1 + r)ⁿ

=300,000 * (1.15)⁵

=603407.15