Answer:
The required cash flow to earn 15% per year is $ 149,157.8
Now, If the expected cash flow is more than $ 149,157.8 per year, they can invest the amount, else it is not suggestible/advisable.
Explanation:
Solution
Given that:
Milwaukee Bucks are considering whether they should add an additional vending area, at a cost of = $500,000
The investment to be made will result in a ROR = 15%
Expected revenue = between $138,000 and $165,000
Now,
The Computation of Required Cash flow per year is stated as follows:
= Initial Investment / PVAF (r%, n )
= $ 500,000 / PVAF (15%, 5)
= $ 500,000 / 3.3522
= $ 149,157.8
Thus,
The required flow of cash to earn 15% per year is $ 149,157.8
If the expected cash flow is more than $ 149,157.8 per year, they can invest the amount, else it is not suggestible.
