A firm is considering a project with an annual cash flow of $80,000.The project would have a 10-year life,and the company uses a discount rate of 8 percent.What is the maximum amount the company could invest in the project and have the project still be acceptable (rounded)?

Question

Quizplus · Accepted Answer

The maximum amount the company could invest is the present value of the annual cash flows at the discount rate of 8% for 10 years. Using a financial calculator, we get that the present value of the cash flows is $536,800. Therefore, the maximum amount the company could invest in the project and still have a positive net present value is $536,800.

A Firm Is Considering a Project with an Annual Cash