Lennon, Inc. is considering a five-year project that has an initial after-tax outlay or after-tax cost of $80,000. The respective future cash inflows from its project for years 1, 2, 3, 4 and 5 are: $15,000, $25,000, $35,000, $45,000 and $55,000. Lennon uses the net present value method and has a discount rate of 9%. Will Lennon accept the project?
A) Lennon accepts the project because the NPV is $129,455.25.
B) Lennon accepts the project because the NPV is 79,455.25.
C) Lennon accepts the project because the NPV is $49,455.25.
D) Lennon accepts the project because the NPV is less than zero.

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 positive at $49,455.25, indicating the project is acceptable.