Bluebird Inc.requires all capital investments to generate an internal rate of return of 14 per cent.Bluebird is currently considering an investment that is expected to generate annual cash inflows of $12 000 for 5 years.The cost of the investment should not exceed:

Question

Quizplus · Accepted Answer

The correct answer is calculated using the present value of an annuity formula, where the annual cash inflow is $12,000, the required rate of return is 14%, and the period is 5 years. The formula is PV = PMT × [(1 - (1 + r)^-n) / r], where PV is the present value (maximum investment cost), PMT is the annual cash inflow, r is the rate of return, and n is the number of periods. Plugging in the values, we get PV = $12,000 × [(1 - (1 + 0.14)^-5) / 0.14], which calculates to approximately $41,197.