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.
Answer: D
Explanation: D) NPV = -CF0 + + + +
= -$80,000 + + + +
= -$80,000 + $35,714.29 + $31,887.76 + $21,353.41 + $19,065.54
= -$80,000 + $108,020.99 = $28,020.99.
Thus, Dweller accepts the project because it has a positive NPV.
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