Question

A project that will last for 10 years is expected to have equal annual cash flows of $103,900. If the required return is 8.4 percent, what maximum initial investment would make the project acceptable

Answer 1

Maximum amount will be present value of future cash flow is $684,772.10

Step-by-step explanation:

Present Value of annual cash flow = Annual Cash flows * Present value of annuity of 1

Present Value of annual cash flow = $103,900 * 6.590684

Present Value of annual cash flow = $684,772.0676

Present Value of annual cash flow = $684,772.10

Workings

Present value of annuity of 1 = (1-(1+i)^-n)/i

i = 8.40%, n = 10 years

Present value of annuity of 1 = (1-(1+0.084)^-10)/0.084

Present value of annuity of 1 = 6.590684306