What is the NPV of a $45,000 project that is expected to have an after-tax cash flow of $14,000 for the first two years, $10,000 for the next two years, and $8,000 for the fifth year? Use a 10% discount rate. Would you accept the project?
What will be an ideal response?
Answer:
After-tax PVIF Present
Year Cash Flow at 10% Value
1 $14,000 .909 $12,726
2 14,000 .826 11,564
3 10,000 .751 7,510
4 10,000 .683 6,830
5 8,000 .621 4,968
Present value cash flow $43,598
Initial outlay 45,000
Net present value $-1,402
Project should be rejected.
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