A project has a projected initial investment of $125,000, net annual cash flows of $56,000 for five years, and a rate of return of 10%. With a tax rate of 21% and a net present value of $62,606, how much can the project be off in the cash flow estimate before the project is less impressive with a net present value of zero?

Question

Quizplus · Accepted Answer

$56,000 ÷ (1 - .21) = $70,887, $125,000 ÷ 3.79079 = $32,975 ÷ (1 - .21) = $41,740, $70,887 - $41,740 = $29,147
After-tax cash flows ÷ (1 - tax rate) = before-tax NPV, Int. Cost ÷ PVOA, n=5, i= 10% = after tax cash flow ÷ (1 - tax rate) = before tax BE cash flows, before-tax NPV - before tax BE cash flows = difference

A Project Has a Projected Initial Investment of $125,000, Net