Sportswear Online,Inc.is considering a project that has an initial after-tax outlay or after-tax cost of $220,000.The respective future cash inflows from its four-year project for years 1 through 4 are: $50,000,$60,000,$70,000 and $80,000.Sportswear Online uses the net present value method and has a discount rate of 11%.Will Sportswear Online accept the project?

Question

Quizplus · Accepted Answer

To calculate the NPV, we need to discount each future cash flow using Sportswear Online's discount rate of 11%. Using the formula for calculating NPV, 
NPV = Present value of cash inflows - Present value of initial investment
= (-$220,000) + $50,000/(1+0.11)^1 + $60,000/(1+0.11)^2 + $70,000/(1+0.11)^3 + $80,000/(1+0.11)^4
= -$220,000 + $39,106.43 + $42,580.21 + $42,372.92 + $42,139.01
= -$53,801.43
Since the NPV is negative, the project should be rejected. 
Therefore, the correct answer is B.