Patterson Publishers is considering an investment that would require an initial cash outlay of $400,000 and would have no salvage value. The project would generate annual cash inflows of $75,000 . The firm's discount rate is 8 percent. How many years must the annual cash flows be generated for the project to generate a net present value of $0? Present value tables or a financial calculator are
required.
a. between 5 and 6 years
b. between 6 and 7 years
c. between 7 and 8 years
d. between 8 and 9 years
C
$400,000 / $75,000 = 5.33
Using the Present Value of an Annuity at 8%, the constant falls between 7 and 8 years.
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