Question

A project with an initial investment of $460,100 will generate equal annual cash flows over its 11-year life. The project has a required return of 8.2 percent. What is the minimum annual cash flow required to accept the project

Answer 1

Answer: $65,075.85

Step-by-step explanation:

Given that the cash flow should be constant, it will be an annuity.

The initial investment will be the present value of this annuity.

Present value of annuity = Annuity * ( 1 - (1 + rate)^-number of periods) / rate

460,100 = Annuity * ( 1 - (1 + 8.2%) ⁻¹¹) / 8.2%

460,100 = Annuity * 7.070211525

Annuity = 460,100 / 7.070211525

= $65,075.85