Patterson Publishers is considering an investment that would require an initial cash outlay of $400,000 and would have no salvage value.The project would generate annual cash inflows of $75,000.The firm's discount rate is 8 percent.How many years must the annual cash flows be generated for the project to generate a net present value of $0? Present value tables or a financial calculator are required.

Question

Quizplus · Accepted Answer

The net present value (NPV) is calculated by discounting the annual cash inflows at the firm's discount rate and comparing it to the initial investment. Using the present value of annuity formula or tables, the NPV will be zero when the present value of the cash inflows equals the initial investment of $400,000. At an 8% discount rate, this occurs between 7 and 8 years.

Patterson Publishers Is Considering an Investment That Would Require an Initial