Question

The initial investment needed is $500,000 and the expected cash flows from this project will be 70,000 for the next 10 years. Will your project be approved, (generates a return higher than 12%). What cash flow would be required to get your project approved

Answer 1

first part

Initial outlay = -$500,000

10 future cash flows = $70,000

PV of 10 future cash flows = $70,000 x 5.6502 (PVIFA, 12%, 10 periods) = $395,514

NPV = -$500,000 + $395,514 = -$104,486

the project will be rejected

second part

in order to have an NPV ≥ 0

annual cash flow = $500,000 / 5.6502 = $88,492.45 or higher