A project is expected to produce cash inflows of $6,500 for three years. What is the maximum amount that can be spent on costs to initiate this project and still consider the project as acceptable, given an 11% discount rate?
A) $15,884.15
B) $15,897.97
C) $15,900.00
D) $15,967.39
E) $19,500.00

Question

Quizplus · Accepted Answer

The maximum amount that can be spent on costs to initiate this project, while still considering the project acceptable, can be calculated using the present value of annuity formula. Given the cash inflows of $6,500 for three years and an 11% discount rate, the calculation is as follows: PV = P * [(1 - (1 + r)^-n) / r], where P = $6,500, r = 0.11, and n = 3. This results in a present value of approximately $15,884.15, making option A the correct answer.

A Project Is Expected to Produce Cash Inflows of $6,500