A four-year project has an initial outlay of $100,000. The future cash inflows from its project are $50,000 for years one and two and $40,000 for years three and four. Given a discount rate of 10%, will the project be accepted?
A) Accept the project as the NPV is $44,150.
B) Reject the project as the NPV is $44,150.
C) Reject the project as the NPV is $(44,150).
D) Accept the project as the NPV is $18,250.
E) Reject the project as the NPV is $18,250.

Question

Quizplus · Accepted Answer

The NPV is calculated as follows:NPV = -Initial Outlay + (Cash Inflow / (1 + Discount Rate)^Year)NPV = -$100,000 + ($50,000 / (1 + 0.1)^1) + ($50,000 / (1 + 0.1)^2) + ($40,000 / (1 + 0.1)^3) + ($40,000 / (1 + 0.1)^4)NPV = -$100,000 + $45,454.55 + $41,322.32 + $33,929.41 + $30,845.37NPV = $44,150.65Since the NPV is positive, the project should be accepted.

A Four-Year Project Has an Initial Outlay of $100,000