Anton Wine Company is considering a project with annual after-tax cash flows of $4000 per year for 5 years. The company's cost of capital is 5%. Using the net present value method, what is the maximum amount that the company should invest?

Question

Quizplus · Accepted Answer

The maximum amount the company should invest is the present value of the future cash flows. Using the formula for the present value of an annuity: PV = P * [(1 - (1 + r)^-n) / r], where P = $4000, r = 0.05, and n = 5, the calculation gives a present value of approximately $17,318. This is the maximum amount that should be invested for the project to be considered worthwhile at a cost of capital of 5%.

Anton Wine Company Is Considering a Project with Annual After-Tax