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Calculating maximum amount that can be invested in a project

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A project is expected to generate cash flows of $14,000 annually for six years plus an additional $27,000 in year 6. The cost of capital is 10%

a.What is the most you can invest in this project at time 0 and still have a positive NPV?
b.What is the most you can invest in this project at time 0 if you want to have a 15% IRR?

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Solution Summary

The solution describes the steps to calculate maximum amount that can be invested in a project so that given criteria is satisfied.

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Please refer attached file for better clarity of tables and formulas.

Solution:

a. What is the most you can invest in this project at time 0 and still have a positive NPV?

Let us see cash flows associated with the project
Year End Cash flows PV Factor @10% PV of cash flow
n Ci PVF=1/(1+10%)^n Ci*PVF
1 14000 0.9091 12727.27
2 14000 0.8264 11570.25
3 ...

Solution provided by:
Lokesh Jain, MSc
Education
  • BEng (Hons) , Birla Institute of Technology and Science, India
  • MSc (Hons) , Birla Institute of Technology and Science, India
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