Question

Wandering RV is evaluating a capital budgeting project that is expected to generate $26,200 per year during its slx-year life. If its required rate of return is 12 . percent, what is yalue of the project to Wandering RV? Do not round intermediate calculations. Round your answer to the nearest cent.

Answer 1

The value of Wandering RV's project is calculated using the present value of an annuity formula with the given annual cash flows, rate of return, and project life.

Step-by-step explanation:

The question involves calculating the value of a capital budgeting project for Wandering RV, which is expected to generate $26,200 per year for six years, with a required rate of return of 12%. This requires the calculation of the present value of an annuity. Using the present value of an annuity formula, the calculation would be PV = Pmt × ((1 - (1 + r)^-n) / r), where Pmt is the annual payment, r is the periodic interest rate, and n is the number of periods. To find the value of the project:

Pmt = $26,200
r = 12/100 = 0.12
n = 6

Plugging these values into the formula, we get:

PV = $26,200 × ((1 - (1 + 0.12)^-6) / 0.12)

After calculating the above formula, we would obtain the present value of the project, which should be rounded to the nearest cent as per the instructions.