You require an internal rate of return of 8% to accept a project. If the project will yield $10,000 per year for 10 years, what is the maximum amount that you would be willing to invest in the project?
A) $51,400
B) $67,100
C) $100,000
D) $144,870
B) $67,100
Appendix D
PVIFA(10 periods, 8%) = ($ Investment/$10,000)
6.710 = ($ Investment/$10,000)
Maximum investment = $67,100
Note that Appendix D CAN be used in this case because the cash inflows remain the same during the payback period, thereby making this an "annuity."
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