A project costing $218,000 has equal annual cash inflows over its 7-year life.If the discounted payback period is seven years and the discount rate is zero percent,what is the amount of the cash flow in each of the seven years?
A)$31,142.86 per year for each of the seven years
B)$0 for Years 1 to 6 and $218,000 in Year 7
C)Any amount between $0 and $218,000 for any one year,provided the sum of the seven cash flows totals $218,000.
D)$218,000 for Year 1 and $0 for Years 2 through 7.
E)$0 for each of the seven years

Question

Quizplus · Accepted Answer

Since the project has equal annual cash inflows over its 7-year life, the cash flow in each of the seven years must be the same. The discounted payback period is seven years, which means that it takes seven years for the discounted cash inflows to equal the initial investment. Since the discount rate is zero percent, the discounted cash inflows are the same as the undiscounted cash inflows. Therefore, the amount of cash flow in each of the seven years is $218,000 divided by 7, which equals $31,142.86 per year. Therefore, choice A is the correct answer.

A Project Costing $218,000 Has Equal Annual Cash Inflows Over