Idaho Industries Inc.is considering a project that has an initial after-tax outlay or after-tax cost of $350,000.The respective future cash inflows from its five-year project for years 1 through 5 are $75,000 each year.Idaho expects an additional cash flow of $50,000 in the fifth year.The firm uses the net present value method and has a discount rate of 10%.Will Idaho accept the project?
A)Idaho accepts the project because it has an NPV greater than $5,000.
B)Idaho rejects the project because it has an NPV less than $0.
C)Idaho accepts the project because it has an NPV greater than $18,000.
D)There is not enough information to make a decision.

Question

Quizplus · Accepted Answer

The NPV is calculated by discounting the future cash inflows at the given discount rate and subtracting the initial outlay. The NPV is negative, indicating the project should be rejected.