What is the maximum amount of money (in dollars) which should be invested in a new capital project today under the assumption that the project's end-of-year cash inflows will be $400,000 each of the next four (4) years, assuming the cost of capital (or r) is 12.5%? Please note that I am asking you to find the value of -CF₀, which is the maximum cash outflow today in order to justify investing in this project according to the NPV criteria. Please round your answer to the nearest whole dollar.

Maximum Cash Outflow Today (-CF₀) =

Maximum cash outflow today = 1202200

Step-by-step explanation

The solution to the answere lies in the formula of NPV   

NPV = pv of cash inflow - pv of cash outflow 

Hence the maximum amount of cash outflow that can be invested today is where npv doesnt get negative that is NPV must atleast be 0 that is break even 

Step 1 calculating maximum amount of cash flow that can be invested today 

0 = pv of cash inflow - pv of cash outflow 

0 = 1202200 - pv of cash outflow 

Pv of cash outflow = 1202200

Working note 

Calculating pv of cash inflow 

Pv of cash inflow = 

Method 1 by pvf 

Year        cash inflow    pvf @ 12.5%     pv 

1                  400000         .8888         355520

2                  400000        .7901           316040

3                 400000         .7023          280920

4                 400000         .6243          249720

Pv of cash inflow = 1202200 ( approx) 

The difference could be due to rounding off of present value factors of 12.5%

Method 2 by pvaf 

If instead of getting pv of each cash inflow we calculate pv through pvaf the pv of cash inflow would be 

=400000× pvaf if 12.5 % for 4 years 

= 400000×3.0056

= 1202240