Webster, Inc. is considering an eightminusyear project that has an initial afterminustax outlay or afterminustax cost of $180,000. The future afterminustax cash inflows from its project for years 1 through 8 are the same at $35,000. Webster uses the net present value method and has a discount rate of 12%. Will Webster accept the project?

Question

Business

Emilee Woods

22 January, 17:54

Webster, Inc. is considering an eightminusyear project that has an initial afterminustax outlay or afterminustax cost of $180,000. The future afterminustax cash inflows from its project for years 1 through 8 are the same at $35,000. Webster uses the net present value method and has a discount rate of 12%. Will Webster accept the project?

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Ean Hensley · Answer 1

No

Explanation:

The estimation of the net present value is shown below:

= Present value of all yearly cash inflows after applying discount factor - initial investment

where,

The Initial investment is $180,000

All yearly cash flows would be

= Annual cost savings * PVIFA for 8 years at 12%

= $35,000 * 4.9676

= $173,886

Refer to the PVIFA table

Now set these values to the formula above

So, the value would equal to

= $173,886 - $180,000

= - $6,134

Since the net present value is negative, so the project should not be accepted