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 $$\begin{array} { c c c }
\text { Year } & \begin{array} { c }
\text { Present Value } \
\text { of } 1 \text { at } 15 \%
\end{array} & \begin{array} { c }
\text { PV of an Annuity } \
\text { of } 1 \text { at } 15 \%
\end{array} \
\hline 1 & .870 & .870 \
2 & .756 & 1.626 \
3 & .658 & 2.283
\end{array}$$

Question

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 $$\begin{array} { c c c } 
\text { Year } & \begin{array} { c } 
\text { Present Value } \
\text { of } 1 \text { at } 15 \%
\end{array} & \begin{array} { c } 
\text { PV of an Annuity } \
\text { of } 1 \text { at } 15 \%
\end{array} \
\hline 1 & .870 & .870 \
2 & .756 & 1.626 \
3 & .658 & 2.283
\end{array}$$

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 $54,180, and subtracting the NPV of $9,000 gives an initial investment of $45,180.

Sloan Inc Recently Invested in a Project with a 3-Year Life