Chapter 14, Problem 2IEE

When an investment’s annual net cash inflows are equal every year, the investment’s payback period can be calculated as: (See your Chapter 25 notes, page 2) When an investment’s annual net cash inflows are equal every year, the investment’s payback period can be calculated as: (See your Chapter 25 notes, page 2) Initial cost of the investment minus the annual net cash inflow Average amount of the investment divided by the average annual net income Initial cost of the investment divided by the annual net cash inflow Present value of net cash inflow divided by the initial cost of the investment Future value of net cash inflow divided by the initial cost of the investment Present value of the net cash inflow minus the initial cost of the investment Annual net cash inflow minus the initial cost of the investment Average annual net income divided by the average amount of the investment

Calculate the net cash inflows for each of the four years so that the NPV of the proposed investment is zero.

What uniform annual series of cash flows over a 12-year period is equivalent to an investment of $5,000 at t = 0, followed by receipts of $600 per year for 11 years and a final receipt of $1,600 at t = 12 if the investor’s time value of money is 6% per year?