A firm is considering a project with annual cash flows of $300,000. The project would have a five-year life, and the company use

Question

3 years ago

13

s a discount rate of 12%. What is the amount at which the firm would be indifferent between accepting or rejecting the investment

1 answer:

stealth61 [152] · Answer 1 · 2022-04-26T20:24:54+03:00

Answer:

$1,081,434

Explanation:

<em>At indifference point, the present value of cash outflow equals present value of cash inflow.</em>

Present value of cash inflow = Annual cash inflow * PV annuity factor (12%, 5 years)

Present value of cash inflow = $300,000*3.60478

Present value of cash inflow = $1,081,434

So, the amount at which the firm would be indifferent between accepting or rejecting the investment is $1,081,434.