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? (Ignore income taxes in this problem.)

Question

Quizplus · Accepted Answer

The net present value (NPV) is calculated by discounting the future cash inflows and subtracting the initial investment. Given that the NPV is $500, we can set up the equation: NPV = (PV of cash inflows) - Initial Investment. Solving for the initial investment using the given cash inflows and discount rate, we find it to be $7,054.

Horn Corporation Is Considering Investing in a Four-Year Project