Present Value of $ 1 at 12% for 8 years = 0.404 Present Value of an...

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

Solutions

Expert Solution

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.

ekkarill92 answered 1 year ago

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Subjects

	a.	$ 22,624
	b.	180,992
	c.	$278,208
	d.	$448,000