Question

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?

Answer 1

dweller accept the this project as NPV value is positive

Step-by-step explanation:

Net present value (NPV) of the project is the total sum of the current value of all the outflows & inflows:

Accept if NPV is positive.

CF = cash flows

r = discount rate = 12%

NPV = - CF_0 + CF_1 / (1 + r) + CF_2 / (1 + r)^2 + CF_3/ ( 1+ r)^3 + CF_4/ (1+r)^4

CF_0 = $80000

CF_1 = $40000

CF_2 = $30000

CF_3 = $30000

discount rate r = 12%

NPV = - 80000 + 40000 / ( 1+ 0.12) + 40000 / ( 1+ 0.12)^2 + 30000/ (1 + 0.12) ^ 3 + 30000 / ( 1+ 0.12)^4

NPV = - 80000 + 35714.29 + 31887.76 + 21353.41 + 19065.54

NPV = $28020.99

therefore dweller accept the this project as NPV value is positive