Question

What is the maximum that should be invested in a project at time zero if the inflows are estimated at $50,000 annually for 3 years, and the cost of capital is 19%?

Answer 1

Explanation:

Given that inflows are estimated at $50,000 annually for 3 years

Thus we find that total inflows are

I year 50000

II year 50000

III year 50000

150000

Maximum investment should be the one which equals present value of inflow

Interest 19%

Year Inflow Pre. Value

I 50000 42016.80672

II 50000 35308.24094

III 50000 29670.79071

Total inflow at present value 106995.8384

Max Amount to be invested 106995.8

Answer is 106995.80