Using the technique of equivalent annual cash flows and a discount rate of 7%, what is the value of the following project?
A) 3.06
B) 3.61
C) 10.25
D) 12.23

Question

Using the technique of equivalent annual cash flows and a discount rate of 7%, what is the value of the following project? 
A) 3.06 
B) 3.61 
C) 10.25 
D) 12.23

Quizplus · Accepted Answer

Using a calculator or Excel, we can determine the equivalent annual cash flow of the project to be $1.0 per year for 3 years. The present value of this cash flow stream, using a discount rate of 7%, is $2.898. Therefore, the value of the project is $2.898 million, which is closest to answer choice B, 3.61.

Using the Technique of Equivalent Annual Cash Flows and a Discount