A firm can purchase an asset for a $13,000 initial investment. The asset generates an annual after-tax cash inflow of $3,000 for 5 years. Show the work using the formula: NPV = CF(PVIFAr,t) - CFo.
a. Determine the NPV (net present value) of the asset, assuming that the firm has a 10% cost of capital. Is the project acceptable?
b. Determine the maximum required rate of return (closest whole percentage rate) that the firm can have and still accept the project. Discuss this finding in light of your response in part a.