In: Accounting
Present Value of $ 1 at 12% for 8 years = 0.404
Present Value of an annuity at 12% for 8 years = 4.968
Future Value of $1 at 12% for 8 years = 2.476
Future Value of an annuity at 12% for 8 years = 12.3
Vargas Products is considering a capital project. Project A has net cash inflows of $56,000 annually for 8 years. What is the total amount they would be willing to invest if their expected return is 12%?
a. |
$ 22,624 |
|
b. |
180,992 |
|
c. |
$278,208 |
|
d. |
$448,000 |
PV of net cash inflow = Annual cash inflow x PVIFA (i, n)
= $ 56,000 x PVIFA (12 %, 8)
= $ 56,000 x 4.968
= $ 278,208
The expected return of Vargas Products is 12 %. Total present value of the project discounted with this rate is $ 278,208. So, Vargas Products can invest $ 278,208 for a project having 8 annual cash inflows of about $ 56,000.
Hence option “c. $ 278,208” is correct answer.