Sloan Inc. recently invested in a project with a 3-year life span. The net present value...
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 Present Value PV of an Annuity Year of 1 at 15% of 1 at 15% 1 .870 .870 2 .756 1.626 3 .658 2.283
Homework Answers
| Calculation of the initial Investment | |||||||||
| Net Present Value = | Present Value of Cash Inflows- Cash Outflows | ||||||||
| 9000 = | 21000*.870+24000*.756+27000*.658-Initial Investment | ||||||||
| 9000= | 18270+18144+17766- | Initial Investment | |||||||
| 9000= | 54180- | Initial Investment | |||||||
| Initial Investment | = | 54180-9000 | |||||||
| Initial Investment | 45180 | ||||||||
| The Initial Investment is | $45,180 | ||||||||
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