Project Black Swan requires an initial investment of $115,000.It has positive cash flows of $140,000 for each of the next two years.Because of major demolition and environmental clean-up costs,cash flow for the third and final year of the project is $(170,000).If the company 's required rate of return is 12%,the project should be:
A)rejected because the IRR is less than 12%.
B)accepted because the NPV is positive at 16%.
C)the project is unacceptable at any discount rate.
D)rejected because there may be more than one IRR.

Question

Quizplus · Accepted Answer

To determine whether the project is acceptable, we need to calculate the net present value (NPV) at the required rate of return (12%).

NPV = -115,000 + 140,000/(1+0.12) + 140,000/(1+0.12)^2 - 170,000/(1+0.12)^3 
NPV = $36,214.44

Since the NPV is positive, the project should be accepted. Option B is the correct choice.

Project Black Swan Requires an Initial Investment of $115,000