Sloan Inc.recently invested in a project with a 3-year life span.The net present value was $9000 and annual cash inflows were $21000 for year 1; $24000 for year 2; and $27000 for year 3.The initial investment for the project assuming a 15% required rate of return was $\begin{array} { c c c }
\underline{\text { Year } }& \begin{array} { c }
\text { Present Value } \
\underline{\text { of } 1 \text { at } 15 \%}
\end{array} & \begin{array} { c }
\text { PV of an Annuity } \
\underline{\text { of } 1 \text { at } 15 \%}
\end{array} \
1 & .870 & .870 \
3 & .756 & 1.626 \
3 & .658 & 2.283
\end{array}$

Question

Sloan Inc.recently invested in a project with a 3-year life span.The net present value was $9000 and annual cash inflows were $21000 for year 1; $24000 for year 2; and $27000 for year 3.The initial investment for the project assuming a 15% required rate of return was $\begin{array} { c c c } 
\underline{\text { Year } }& \begin{array} { c } 
\text { Present Value } \
\underline{\text { of } 1 \text { at } 15 \%}
\end{array} & \begin{array} { c } 
\text { PV of an Annuity } \
\underline{\text { of } 1 \text { at } 15 \%}
\end{array} \
 1  & .870 & .870 \
3 & .756 & 1.626 \
3 & .658 & 2.283
\end{array}$

Quizplus · Accepted Answer

The initial investment can be calculated by finding the present value of cash inflows and subtracting the NPV. The present value of cash inflows is calculated as follows: Year 1: $21000 * 0.870 = $18270, Year 2: $24000 * 0.756 = $18144, Year 3: $27000 * 0.658 = $17766. Total present value of inflows = $18270 + $18144 + $17766 = $54180. Initial investment = Total present value of inflows - NPV = $54180 - $9000 = $45180.

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