Simpson,Inc.is considering a five-year project that has an initial after-tax outlay or after-tax cost of $80,000.The respective future cash inflows from its project for years 1,2,3,4 and 5 are: $15,000,$25,000,$35,000,$45,000 and $55,000.Simpson uses the net present value method and has a discount rate of 9%.Will Simpson accept the project?
A)Simpson accepts the project because the NPV is $129,455.25.
B)Simpson accepts the project because the NPV is 79,455.25.
C)Simpson accepts the project because the NPV is $49,455.25.
D)Simpson accepts the project because the NPV is less than zero.

Question

Quizplus · Accepted Answer

The NPV is calculated by discounting the future cash inflows at the given rate and subtracting the initial outlay. The NPV is positive, indicating the project is acceptable.