White Company's required rate of return on capital budgeting projects is 12%.The company is considering an investment opportunity that would yield a cash flow of $10,000 in five years.What is the most that the company should be willing to invest in this project? (Ignore income taxes in this problem.)

Question

Quizplus · Accepted Answer

The most the company should be willing to invest is the present value of the future cash flow. Using the formula for present value: PV = FV / (1 + r)^n, where FV is the future value ($10,000), r is the rate of return (0.12), and n is the number of years (5), the calculation is $10,000 / (1.12)^5 = $5,670.

White Company's Required Rate of Return on Capital Budgeting Projects