Copp Co.can invest in a project that costs $200,000.It is expected to provide a lump sum after-tax return of $300,000.If Copp uses an 8 percent discount rate for evaluation, in what year must it recover the $300,000 to produce a positive net cash flow?
A)3rd year
B)4th year
C)5th year
D)6th year

Question

Quizplus · Accepted Answer

To find the year in which the project produces a positive net cash flow, we need to calculate the present value of $300,000 at an 8% discount rate and see in which year it exceeds $200,000. The formula for present value is PV = FV / (1 + r)^n. Solving for n when PV = $200,000, FV = $300,000, and r = 0.08, we find that n is approximately 5 years.

Copp CoCan Invest in a Project That Costs $200,000