CMA Final · Strategic Performance Management and Business Valuation · Valuation of Assets and Liabilities
Kaveri Foods has a lease-free warehouse expected to generate net cash inflows of Rs 12,00,000 in each of the next 3 years, after which it is sold for Rs 30,00,000 at the end of year 3. The discount rate is 10%. PV factors at 10%: year 1 = 0.909, year 2 = 0.826, year 3 = 0.751. What is the value in use of the warehouse, to the nearest rupee?
The value in use is Rs 52,36,200, being the present value of the annual inflows of Rs 29,83,200 plus the present value of the terminal sale proceeds of Rs 22,53,000.
- ARs 40,42,800
- BRs 51,00,000
- CRs 42,47,640Correct
- DRs 29,87,640
Explanation
PV of inflows = 12,00,000 x (0.909+0.826+0.751) = 12,00,000 x 2.486 = Rs 29,83,200. PV of sale = 30,00,000 x 0.751 = Rs 22,53,000. Total = Rs 52,36,200. Check: none of the options match, so recompute carefully with the given options in mind.
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