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Question 5 Maude Company’s required rate of return on capital budgeting projects is 10%. The company...

Question 5

  1. Maude Company’s required rate of return on capital budgeting projects is 10%. The company is considering an investment that would yield a cash flow of $12,000 per year for five years. Ignoring taxes, what is the most that the company will be willing to invest in this project?

    $12,000

    $38,040

    $45,492

    $60,000
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Homework Answers

Answer #1

Option(C) $45,492 is correct.

ROR= 10%, Cashflow=$12,000. Years(n)= 5 years.

*Investment= Cashflow * Discounting factor (5years)

*Investment= $12,000 * 3.7908

*Investment = $45,492.

Workings: Present value table: (1+i)^-n [Refer PV table]

Year PV@10%
0 1
1 0.909091
2 0.826446
3 0.751315
4 0.683013
5 0.620921
For 5 years 3.790787

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