Question

Webster, Inc. is considering an eightminusyear project that has an initial afterminustax outlay or afterminustax cost of​ $180,000. The future afterminustax cash inflows from its project for years 1 through 8 are the same at​ $35,000. Webster uses the net present value method and has a discount rate of​ 12%. Will Webster accept the​ project?

Answer 1

No

Step-by-step explanation:

The estimation of the net present value is shown below:

= Present value of all yearly cash inflows after applying discount factor - initial investment

where,

The Initial investment is $180,000

All yearly cash flows would be

= Annual cost savings × PVIFA for 8 years at 12%

= $35,000 × 4.9676

= $173,886

Refer to the PVIFA table

Now set these values to the formula above

So, the value would equal to

= $173,886 - $180,000

= -$6,134

Since the net present value is negative, so the project should not be accepted