Benjamin Company invested in a 3-year project and expects a 15% rate of return. Annual cash inflows from the project are: year 1 $8,000; year 2 $8,500; and year 3 $9,500. The net present value is $4,000. What was the amount of the original investment? Ignore income taxes.
A) $17,637
B) $15,637
C) $19,637
D) $23,637

Question

Quizplus · Accepted Answer

To calculate the original investment, we need to use the formula for net present value:
NPV = Present Value of Cash Inflows - Initial Investment
$4,000 = $8,000/(1.15)^1 + $8,500/(1.15)^2 + $9,500/(1.15)^3 - Initial Investment
Solving for the initial investment, we get:
Initial Investment = $15,637.44
Therefore, the answer is choice B: $15,637.

Benjamin Company Invested in a 3-Year Project and Expects a 15