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. Ignoring income taxes, what is the maximum amount the company could invest in the project and have the project still be acceptable (rounded)?

Question

Quizplus · Accepted Answer

To find the maximum acceptable investment amount, we need to calculate the present value of the cash flows at a discount rate of 8% for 10 years.
Using a financial calculator or Excel, we can find that the present value of the cash flows is $536,800. Therefore, the maximum amount the company could invest is $536,800. Any investment amount higher than this would result in a negative net present value (NPV) and would not be acceptable.

A Firm Is Considering a Project with an Annual Cash