(Ignore income taxes in this problem.) Naomi Corporation has a capital budgeting project that has a negative net present value of $36,000. The life of this project is 6 years. Naomi's discount rate is 20%. By how much would the annual cash inflows from this project have to increase in order to have a positive net present value?

Question

Quizplus · Accepted Answer

To make the NPV positive, the present value of cash inflows must increase by at least $36,000. Using the present value annuity factor for 6 years at 20% (which is approximately 3.326), the annual cash inflow increase needed is $36,000 / 3.326 = $10,824 or more.

(Ignore Income Taxes in This Problem