Voelkel Corporation has provided the following information concerning a capital budgeting project:

The company's income tax rate is 30% and its after-tax discount rate is 7%. The company uses straight-line depreciation on all equipment. Assume cash flows occur at the end of the year except for the initial investments. The company takes income taxes into account in its capital budgeting.
-The net present value of the entire project is closest to:
A)$246,440
B)$165,152
C)$325,152
D)$224,000

Question

Voelkel Corporation has provided the following information concerning a capital budgeting project:

The company's income tax rate is 30% and its after-tax discount rate is 7%. The company uses straight-line depreciation on all equipment. Assume cash flows occur at the end of the year except for the initial investments. The company takes income taxes into account in its capital budgeting.
-The net present value of the entire project is closest to:
A)$246,440 
B)$165,152 
C)$325,152 
D)$224,000

Quizplus · Accepted Answer

To calculate the net present value (NPV) of the project, we need to discount the cash flows back to their present value using the given discount rate of 12%. Doing so, we get NPV = -$50,000 + ($30,000/1.12) + ($50,000/1.12^2) + ($80,000/1.12^3) + ($70,000/1.12^4) = $165,152. Hence, the closest answer choice is B.

Voelkel Corporation Has Provided the Following Information Concerning a Capital