Jenny Inc. has provided the following data concerning an investment project that has been proposed: The company's tax rate is 30%. For tax purposes, the entire initial investment will be depreciated over 5 years without any reduction for salvage value. The company uses a discount rate of 14%.
-The net present value of the project is closest to:

Question

Jenny Inc. has provided the following data concerning an investment project that has been proposed:  The company's tax rate is 30%. For tax purposes, the entire initial investment will be depreciated over 5 years without any reduction for salvage value. The company uses a discount rate of 14%.
-The net present value of the project is closest to:

Quizplus · Accepted Answer

To calculate the net present value of the project, we need to discount the cash flows to their present value using the given discount rate of 10%.

Year 0: -250,000
Year 1: 80,000/(1+10%) = 72,727.27
Year 2: 90,000/(1+10%)^2 = 74,380.17
Year 3: 100,000/(1+10%)^3 = 75,562.04
Year 4: 120,000/(1+10%)^4 = 81,765.05

NPV = -250,000 + 72,727.27 + 74,380.17 + 75,562.04 + 81,765.05 = $241,435.53

Therefore, the best choice is C, with a net present value of $241,435.

Jenny Inc Has Provided the Following Data Concerning an Investment Project