564 Net Proceeds 9 71,400 72,828 Present Value Factor 20.

We can compute the break-even contribution margin (BE--earning the target 15% on the investment) such that the project's net present value is zero for this project as follows: 0 = {[(BE x 150,000)-2,000,000] x present value annuity factor @15% for 4 years} - 10,000,000 - (5,000,000 x present value factor @ 15% in 4 years) Solving this equation within the indicated factor implies that BE = $43.

PRESENT VALUATION WITH CERTAIN AND UNCERTAIN CASH FLOWS ASSET A B C CERTAIN CERTAIN UNCERTAIN TOMORROW 5 YEARS TOMORROW Contractual 1000 1000 1000 Cash flows Adjustments for expectations -200 Expected cash flows 1000 1000 800 Risk premium adjustment -40 Adjusted cash flows 1000 1000 760 Present value factor at 4% 1.

This is accomplished by discounting each after-tax cash flow through the use of present value factors reflective of the age of the cash flow.

The impact of these changes to terminal value estimate methodology is far less significant if the appraiser is working on a long-term analysis because the present value factor at the end of a twenty-, thirty-, or forty-year holding period is minimal.

With proper planning, particularly in determining the appropriate interest assumption for the present value factor and the adjustments necessitated by the maximum benefit limitations, the age-weighted allocation method can be even more beneficial to the plan sponsor.

12% $136,800 $273,600 Real Estate Taxes per Unit $850 $93,500 $88,400 Construction Costs--Units Sold $660,000 $1,320,000 Total Expense $890,300 $1,682,000 Net Cash How $249,700 $598,000 Present Value Factor @ 23% 0.

Total amount transferred to trust $1,000,000 Less value of retained interest: Annuity payment $70,000 Present value factor from Table B (IRS Publication 1457) x 6.