Aviary, 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
Aviary uses the net present value method and has a discount rate of 11.25%. Will Aviary accept the project?
A) Aviary accepts the project because the NPV is about $5,455.
B) Aviary accepts the project because the NPV is about $165,275.
C) Aviary rejects the project because the NPV is about -$4,725.
D) Aviary rejects the project because the NPV is about -$154,725.
Answer: C
Explanation: C) The future after-tax cash inflows are an annuity. Thus, we can use:
NPV = -CF0 + . Inserting in the given values gives:
NPV = -$170,000 + = -$170,000 + ($45,000 × 3.672771)
= -$170,000 + $165,274.71 = -$4,725.29. Thus, Aviary rejects the project since it has a negative NPV.
Using the NPV function in Excel yields the same answer.
You might also like to view...
Marketers can expand markets by discovering and promoting ________
A) subliminal points of interest B) the deficiencies of competitors C) subtle advantages of the product D) new uses of the product E) green technologies
Parker Pharmaceuticals is a corporation that employs over 400 workers. As the firm continues to grow, the need for discipline among employees has become more critical
The HR department and top executives are planning to revamp the disciplinary action process that is currently in place at Parker. Which of the following most likely undermines a decision to use the hot stove rule approach to discipline? A) Parker supervisors desire flexibility in any disciplinary system. B) Some Parker employees belong to labor unions while other do not. C) The Parker ombudsperson handles most grievance procedures. D) Most disciplinary issues at Parker are related to insubordination.