Question

A new investment project currently under consideration has a negative net present value of $85,000. The project has a life of 10 years, and the minimum required rate of return is 8%. The present value factor for an annuity at 8% for 10 periods is 6.71. What is the amount of annual additional cash flow required from the project for it to be acceptable? $12,668 $6,800 $8,500 $10,000

Answer 1

correct option is $12,668

Step-by-step explanation:

given data

net present value = $85,000

time = 10 year

rate of return = 8%

solution

we apply here formula for Present Value of annual additional cash flow that is

Present Value of annual additional cash flow = Annual cash flow × present value factor for an annuity ............................1

put here value

$85,000 = Annual cash flow × 6.71

Annual cash flow = $12,668

so here correct option is $12,668