Brooks Company invested in a project that is expected to have an annual cash flow of £10,000. The project's life is five years and has an IRR of 14 per cent. How much was the initial investment in the project?

Question

Quizplus · Accepted Answer

The initial investment can be calculated using the formula for the present value of an annuity: PV = C * [(1 - (1 + r)^-n) / r], where C is the annual cash flow, r is the IRR, and n is the number of years. Plugging in the values: £10,000 * [(1 - (1 + 0.14)^-5) / 0.14] = £34,330.

Brooks Company Invested in a Project That Is Expected to Have