A company is considering investing in a project with an expected life of four years. The project has a positive net present value of $280000 when cash flows are discounted at 12 per cent per annum. The project’s estimated cash flows include net cash inflows of $320 000 for each of the four years. No tax is payable on projects of this type.

The percentage decrease in the estimated annual net cash inflows that would cause the company’s management to reject the project from a financial perspective is, to the nearest 0.1 per cent:

(a) 87.5%

(b) 21.9%

(c) 3.5%

(d) 28.8%

(2 marks)

CIMA Pi Performance Operations