A project that will provide annual cash flows of $3,100 for nine years costs $10,400 today. At what discount rate would you be indifferent between accepting the project and rejecting it? Discount rate _________%

A project that will provide annual cash flows of $3,100 for nine years costs $10,400 today. At what discount rate would you be indifferent between accepting the project and rejecting it? Discount rate _________%

PFIN (with PFIN Online, 1 term (6 months) Printed Access Card) (New, Engaging Titles from 4LTR Press)

6th Edition

ISBN:9781337117005

Author:Randall Billingsley, Lawrence J. Gitman, Michael D. Joehnk

Publisher:Randall Billingsley, Lawrence J. Gitman, Michael D. Joehnk

Chapter2: Using Financial Statements And Budgets

Section: Chapter Questions

Problem 5FPE

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Concept explainers

Present Value

Present value (PV) is defined as the current or present value of all future sums of cash flow or money at a specified rate of return. This rate of return is known as the discounted rate, which is essentially the interest rate, discounted over some time. The expected cash flows are discounted at a discount rate to compute the present value. The higher the discount rate, the higher the future value (FV), but the lower the present value.

Question

A project that will provide annual cash flows of $3,100 for nine years costs $10,400 today.

At what discount rate would you be indifferent between accepting the project and rejecting it?

Discount rate _________%

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