Question

Investment A requires a net investment of​ $1,600,000. The required rate of return is​ 12% for the​ four-year annuity. What are the annual cash inflows if the net present value equals​ 0? (rounded) A. ​$378,966 B. ​$591,466 C. ​$549,696 D. ​$526,836

Answer 1

Answer:

D. ​$526,836

Explanation:

We need to solve for the cuota of an annuity of 4 years at 12% discount rate, which present value is 1,600,000

$PV \div \frac{1-(1+r)^{-time} }{rate} = C$

PV  $1,600,000

time           4

rate                   0.12

$1600000 \div \frac{1-(1+0.12)^{-4} }{0.12} = C$

C $ 526,775.10

The cashflow per year should be 526,775 to equal the net investment and give a NPV of zero

Based on the possible option we pick the nearest value. Which is 526,836