Problem:
NPV and maximum return.
A firm can purchase a fixed asset for a $13,000 initial investment. The asset generates an annual after-tax cash inflow of $4,000 for 4 years.
a. Determine the net present value (NPV) 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 asset. Discuss this finding in light of your response in part a.