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A project that provides annual cash flows of $10,000 for 10 years costs $80,000 today. At what discount rate would you be indifferent between accepting the project and rejecting it?

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter11: Capital Budgeting Decisions

Section: Chapter Questions

Problem 7EA: A mini-mart needs a new freezer and the initial Investment will cost $300,000. Incremental revenues,...

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Concept explainers

Present Value

Present value (PV) is defined as the current or present value of all future sums of cash flow or money at a specified rate of return. This rate of return is known as the discounted rate, which is essentially the interest rate, discounted over some time. The expected cash flows are discounted at a discount rate to compute the present value. The higher the discount rate, the higher the future value (FV), but the lower the present value.

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A project that provides annual cash flows of $10,000 for 10 years costs $80,000 today. At what discount rate would you be indifferent between accepting the project and rejecting it?

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