Peanut Co.is planning on investing in a new 2-year project, Project Jelly.Project Jelly is expected to produce cash flows of $100,000 and $120,000 in each of the 2 years, respectively.Peanut requires an internal rate of return of 15%.What is the maximum amount that Peanut should invest immediately in Project Jelly?

Question

Quizplus · Accepted Answer

To find the maximum amount Peanut should invest, we need to calculate the present value of the cash flows using the internal rate of return of 15%. Using a financial calculator or Excel, we get the present value to be $177,720. This means that if Peanut invests $177,720 today, the project will generate a 15% return over the next 2 years, producing the expected cash flows of $100,000 and $120,000. Investing more than $177,720 would result in a lower return, while investing less would result in a higher return. Therefore, Choice B is the best option.

Peanut CoIs Planning on Investing in a New 2-Year Project, Project