Forever Clean Corporation is considering a project with annual after-tax cash flows of $6000 per year for 6 years. The company's cost of capital is 6%. Using the net present value method, what is the maximum amount that the company should invest? (Round to the nearest whole dollar).

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Quizplus · Accepted Answer

The maximum amount that Forever Clean Corporation should invest in the project is the present value of the future cash flows. Using the formula for the present value of an annuity: PV = PMT × [(1 - (1 + r)^-n) / r], where PMT = $6000, r = 0.06, and n = 6, we find the present value (PV). Plugging in the values: PV = $6000 × [(1 - (1 + 0.06)^-6) / 0.06] ≈ $29,504. This is the maximum amount the company should invest, rounded to the nearest whole dollar.

Forever Clean Corporation Is Considering a Project with Annual After-Tax