Horn Corporation is considering investing in a four-year project.Cash inflows from the project are expected to be as follows: Year 1,$2,000;Year 2,$2,200;Year 3,$2,400;Year 4,$2,600.If using a discount rate of 8%,the project has a positive net present value of $500.What was the amount of the original investment?
A) $1,411.
B) $2,411.
C) $7,054.
D) $8,054.

Question

Quizplus · Accepted Answer

To find the original investment, we need to use the formula for net present value:
NPV = Present value of cash inflows - Initial investment

Plug in the given values:
$500 = $2,000/(1+0.08)^1 + $2,200/(1+0.08)^2 + $2,400/(1+0.08)^3 + $2,600/(1+0.08)^4 - Initial investment

Solving for the initial investment:
Initial investment = $7,054. Thus, the answer is C.

Horn Corporation Is Considering Investing in a Four-Year Project