- CFA Exams
- CFA Level I Exam
- Topic 1. Quantitative Methods
- Learning Module 2. Time Value of Money in Finance
- Subject 1. Time Value of Money

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**CFA Practice Question**

A project has the following annual cash flows:

CF

_{1}= 24,000; CF_{2}= 12,700; CF_{3}= 15,000; CF_{4}= -10,000What is the maximum amount a firm should invest in the project if it requires a risk-adjusted 12% rate of return?

A. $35,874

B. $41,700

C. $48,585

**Explanation:**The maximum a firm should pay is the present value of the project's cash flows discounted at 12%. Using a calculator's cash flow keys, PV @ 12% = 35,874

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**User Contributed Comments**
5

User |
Comment |
---|---|

emma51 |
Anyone knows how to use the BAII Plus for this question? |

Nitishm |
I calculated the NPV as normal on the BAII Plus. I used 0 for CF0 and I= 12. This gave me 35,874. |

rjdelong |
you could also just add up the cash flows as they are: 24+12.7+15-10=41.7 since that is answer B its got to be less than that if they need a 12% return... |

rjdelong |
CF 2nd CLRWORK Downarrow C01=24,000 ENTER Downarrow F01=1 Downarrow C02=12,700 ENTER ... C04=10,000 +|- Enter 2nd Quit NPV I=12 Enter Downarrow CPT |

lighty0770 |
there is no initial cash outlay therefore C0=0 |