Multiple Choice Question 76 Blossom recently invested in a p

Multiple Choice Question 76 Blossom recently invested in a project with a 3-year life span. The net present value was $10400 and annual cash inflows were $35000 for year 1; $37000 for year 2; and S39000 for year 3 . The initial investment for the project, assuming a 1S% required rate of return, was Present Value ofl at 15% 0.870 0.756 PV of an Annuity otlat?s. 0.870 1.626 2.283 Year 3 0.658 O $62638. O $8617o. O $69746

Solution

Net Present value = Present Value of cash flow - Initial Investment

Initial Investment = Present Value of cash flow - Net Present value

                          = $ 84084 - $ 10400

                          = $ 73684 ANSWER

WORKING NOTE

Present value of cash flow = Sum of annual cash flow * Present value factor @ 15%

                                       = 35000 * .870 + 37000 * 0.756 + 39000 * 0.658

                                       = $ 84084

Net present value    = $ 10400