Question

A project that will last for 10 years is expected to have equal annual cash flows of $103,900. If the required return is 8.4 percent, what maximum initial investment would make the project acceptable?

A)$655,213.49

B)$595,833.43

C) $684,772.10

D)1,534,047.75

E)$638,392.96

Answer 1

C) $684,772.10

Maximum amount will be present value of future cash flows.

Present Value of annual cash flow				=	Annual Cash flows * Present value of annuity of 1
				=	$       1,03,900	*	6.590684
				=	$ 6,84,772.10
Working:
Present Value of annuity of 1				=	(1-(1+i)^-n)/i			Where,
				=	(1-(1+0.084)^-10)/0.084			i	8.40%
				=	6.590684306			n	10
Note:
Discount factors are not rounded off.