Dynaflex Corp. is considering an investment project that costs $950 today. It expects the project will yield income of $350 at the end of years 1, 2, and 3. The interest rate must be ________ for the firm to undertake the project.

Question

Quizplus · Accepted Answer

The project should be undertaken if the present value of future cash flows is at least equal to the initial investment. The present value of $350 received at the end of years 1, 2, and 3 at a 5% interest rate is approximately $952.46, which is more than the initial cost of $950. Therefore, the interest rate must be no more than 5% for the project to be viable.