Question

A project with an initial investment of $440,900 will generate equal annual cash flows over its 11-year life. The project has a required return of 8.2 percent. What is the minimum annual cash flow required to accept the project

Answer 1

Answer:

Project should have minimum annual cash flow of  $62,373.06 to accept the project

Explanation:

Any project will be accepted if its net present value (NPV) is positive

Hence, NPV>0

Sum of discounted cash inflow - Discounted Cash outflow > 0

Annual cash inflow * PVAF (8.2%, 11 years) - $440,990 > 0

Annual cash inflow * 7.0702 - $440,990 > 0

Annual cash inflow * 7.0702 > $440,990

Annual cash inflow > $440,990 / 7.0702

Annual cash inflow > $62,373.06

So project should have minimum annual cash flow of  $62,373.06 to accept the project