Question

the cost of a project would be $100,000, payable upfront, while revenues are expected to be $10,000 per year forever. if the interest rate on comparable assets is 5%, is the project worthwhile. provide an explanation and show your calculations

Answer 1

The project is worth pursuing because the present value of the revenues is greater than the cost.

Step-by-step explanation:

The project's cost is $100,000 upfront, while the expected revenues are $10,000 per year indefinitely. To determine if the project is worthwhile, we need to calculate the present value of the revenues and compare it to the cost.

The present value of the revenues can be calculated using the formula:

PV = Annual Revenue / Interest Rate

Using the given interest rate of 5%, the present value of the revenues is $10,000 / 0.05 = $200,000.

Since the present value of the revenues ($200,000) is greater than the cost of the project ($100,000), the project is worth pursuing.