Sloan Inc.recently invested in a project with a 3-year life span.The net present value was $9,000 and annual cash inflows were $21,000 for year 1; $24,000 for year 2; and $27,000 for year 3.The initial investment for the project, assuming a 15% required rate of return, was $\begin{array}{rrr}& \text { Present Value } & \text { PV of an Annuity } \
\text { Year } & \text { of } 1 \text { at } 15 \% & \text { of } 1 \text { at } 15 \%\
1 & .870 & .870 \
2 & .756 & 1.626 \
3 & .658 & 2.283
\end{array}$

Question

Quizplus · Accepted Answer

The initial investment can be calculated by finding the present value of the cash inflows and subtracting the net present value. The present value of cash inflows is calculated as follows: Year 1: $21,000 * 0.870 = $18,270; Year 2: $24,000 * 0.756 = $18,144; Year 3: $27,000 * 0.658 = $17,766. Total present value of cash inflows = $54,180. Initial investment = $54,180 - $9,000 (NPV) = $45,180.

Sloan IncRecently Invested in a Project with a 3-Year Life Span