Dweller,Inc.is considering a four-year project that has an initial after-tax outlay or after-tax cost of $80,000.The future cash inflows from its project are $40,000,$40,000,$30,000 and $30,000 for years 1,2,3 and 4,respectively.Dweller uses the net present value method and has a discount rate of 12%.Will Dweller accept the project?
A)Dweller accepts the project because the NPV is greater than $30,000.
B)Dweller rejects the project because the NPV is less than -$4,000.
C)Dweller rejects the project because the NPV is -$3,021.
D)Dweller accepts the project because it has a positive NPV of over $28,000.

Question

Quizplus · Accepted Answer

The NPV is calculated as follows:NPV = -Initial Outlay + (Cash Inflow1 / (1 + Discount Rate)^1) + (Cash Inflow2 / (1 + Discount Rate)^2) + (Cash Inflow3 / (1 + Discount Rate)^3) + (Cash Inflow4 / (1 + Discount Rate)^4)NPV = -$80,000 + ($40,000 / (1 + 0.12)^1) + ($40,000 / (1 + 0.12)^2) + ($30,000 / (1 + 0.12)^3) + ($30,000 / (1 + 0.12)^4)NPV = -$80,000 + $35,714.29 + $31,887.76 + $26,774.88 + $23,906.14NPV = $28,273.07Since the NPV is positive, Dweller should accept the project.