Question

A firm is considering a project with an annual cash flow of $200,000. 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?

Answer 1

Answer:

$973,680

Explanation:

In this question, we have to find out the present value which is computed below:

= Annual cash flows × PVIFA for 7 years at 10%

= $200,000 × 4.8684

= $973,680

Refer to the PVIFA table

The annual cash flows with the PVIFA is simply multiplied so that the exact amount can arrive.

The present value is come after taking the discount rate in the account for the given number of periods