Rocket Red,Inc.is considering a five-year project that has initial after-tax outlay or after-tax cost of $170,000.The future after-tax cash inflows from its project for years 1 through 5 are $45,000 for each year.Rocket Red uses the net present value method and has a discount rate of 11.25%.Will Rocket Red accept the project?
A)Rocket Red accepts the project because the NPV is about $5,455.
B)Rocket Red accepts the project because the NPV is about $165,275.
C)Rocket Red rejects the project because the NPV is about -$4,725.
D)Rocket Red rejects the project because the NPV is about -$154,725.

Question

Quizplus · Accepted Answer

The NPV is calculated by discounting the future cash inflows at the given discount rate and subtracting the initial outlay. The NPV is negative, approximately -$4,725, indicating the project should be rejected.