Question

A project with an initial investment of $448100 will generate equal annual cash flows over its 9-year life. The project has a required return of 8.8 percent. What is the minimum annual cash flow required to accept the project

Answer 1

Answer: $74,135.94

Step-by-step explanation:

Using present value factor =
`(1)/((1+r)^n)` , where r= percent of return, n number of years

As per given , r= 808% = 0.088

Present value factor for 9 year life =
`(1)/(1.088^1)+(1)/(1.088^2)+...(1)/(1.088^9)`

`0.919117647059+0.844777249135+0.776449677514+0.713648600656+0.655927022662+0.602874101711+0.554112225837+0.509294325218+0.468101401855\\\\=6.04430225165`

Minimum cash flow=
`\frac{\text{Initial investment}}{\text{Present value factor for 9 year life}}`

`=(448100)/(6.04430225165)\approx74135.94`

Hence, the minimum annual cash flow required to accept the project = $74,135.94 .