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

D. ​$526,836

Step-by-step 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 / (1-(1+r)^(-time) )/(rate) = C\\`

PV $1,600,000

time 4

rate 0.12

`1600000 / (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