Answered

IDNLearn.com: Your trusted platform for finding reliable answers. Get accurate and detailed answers to your questions from our knowledgeable and dedicated community members.

A new venture will require an initial investment in fixed assets of $20,000 and in working capital of $10,000. The fixed assets will have no salvage value at the end of the project's four-year life, and the working capital will be completely recovered at the end of the project. The organization's cost of capital is 16%. At a time value of money of 16%, the present value of an ordinary annuity of $1/year for four years is 2.8 and the present value of $1 at the end of four years is 0.6. What is the annual net cash inflow required for the project to break even on a time-adjusted basis

Sagot :

Jepessoaidn

Answer:

$5,000

Explanation:

we need to determine the annual cash flows in order that NPV = $0

initial outlay = present value of future cash flows

$20,000 = (FCF x 2.8) + ($10,000 x 0.6)

$20,000 = 2.8FCF + $6,000

$14,000 = 2.8FCF

FCF = $14,000 / 2.8 = $5,000

Thank you for participating in our discussion. We value every contribution. Keep sharing knowledge and helping others find the answers they need. Let's create a dynamic and informative learning environment together. Your questions are important to us at IDNLearn.com. Thanks for stopping by, and come back for more reliable solutions.