If we know a project’s IRR is 11%, and provides annual cash-flows of $15,000 for six...
If we know a project’s IRR is 11%, and provides annual cash-flows of $15,000 for six years, how much is the maximum that the project could have cost assuming the investors are rational decision makers and what to maximize income?
Homework Answers
Let initial cost be P
IRR = 11%
Annual cash flow= 15000
t = 6 yrs
At IRR net present value of cash flow is zero, therefore
-P + 15000(P/A,11%,6) = 0
P = 15000*4.2305378
P = 63458.07
maximum value of the initial cost can be 63458
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