Question

​Sandstone, Inc. is considering a fourminusyear project that has an initial afterminustax outlay or afterminustax 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. Sandstone uses the net present value method and has a discount rate of​ 12%. Will Sandstone accept the​ project?

Answer 1

NPV = $28020.99

so he accept the this project as NPV value is positive

Step-by-step explanation:

given data

CF 0 = $80000

CF 1 = $40000

CF 2 = $40000

CF 3 = $30000

CF 4 = $30000

discount rate r = 12%

solution

we get here Net present value (NPV) of the project that is total sum of the current value of all flow that is express as

NPV =
`- CF 0 + (CF1)/((1 + r)) + (CF 2)/((1 + r)^2) + (CF3)/(( 1+ r)^3) + (CF4)/((1+r)^4)` ...........................1

put here value and we get

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

solve it we get

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

NPV = $28020.99

so he accept the this project as NPV value is positive