A firm is considering a project with an annual cash flow of $400,000.The project would have a seven-year life,and the company uses a discount rate of 10%.What is the maximum amount the company could invest in the project and have the project still be acceptable?

Question

Quizplus · Accepted Answer

The maximum amount that the company could invest in the project can be calculated using the present value formula:

PV = FV / (1+r)^n

where PV is the present value, FV is the future value (annual cash flow), r is the discount rate, and n is the number of years.

In this case, PV = $400,000 / (1+0.10)^7 = $1,947,200.

Therefore, the maximum amount the company could invest in the project and still have it be acceptable is $1,947,200. The only option that exceeds this amount is D, so the best choice is D.

A Firm Is Considering a Project with an Annual Cash