A Company Is Considering a Project with Annual After-Tax Cash

question 34

Multiple Choice

A company is considering a project with annual after-tax cash flows of $5,600.00 per year for six years.The company's cost of capital is 14 percent.Present and future value factors for a 14 percent interest rate for six years are as follows: $\begin{array}{ll}\text { Future value of } \$ 1 & 2.195 \\\text { Present value of } \$ 1 & 0.456 \\\text { Future value of a series of equal payments } & 8.536 \\\text { Present value of a series of equal payments } & 3.889\end{array}$
Using the net present value method,what is the maximum amount that the company should invest?

• A) $21,778.40
• B) $47,801.60
• C) $12,292.00
• D) $2,553.60

---

Definitions:

Interest Rate

The percentage at which interest is paid by a borrower for the use of money that they borrow from a lender.

Cash Equivalent

Short-term, highly liquid investments that are easily convertible to known amounts of cash and have original maturities of three months or less.

Non-Interest-Bearing Note

A debt instrument that does not accrue interest over its life, meaning it is issued at its face value and repaid at the same amount without additional interest payments.

Market Rate

The prevailing interest rate available in the marketplace for loans and deposits, influenced by supply and demand, the central bank’s policy, and other factors.