Question

Project PRC is expected to generate net cash flows of $8,200 a year for three years. If the appropriate cost of capital is 10%, what is the maximum amount one should be willing to invest in this project?

Answer 1

SOLUTION:
	CACLULATION OF THE PRESENT VALUE OF INVESTMENT
	Years	Cash Inflow	PVF @ $ 1 @ 10%	Present Value (A XB)
	1	$       8,200.00	0.9091	$           7,454.55
	2	$       8,200.00	0.8264	$           6,776.86
	3	$       8,200.00	0.7513	$           6,160.78
				$         20,392.19
REMARKS:
	In three year investment will give the return of $ 24,600 but present
	value of this return from investment is with 10% cost of capital is
	coming only $ 20,392.19 At rounded to nearest $ it comes $ 20,392
	So maximum amount if any one willing to invest than it is Present value that is $ 20,392
	Answer = $ 20,392