26 June, 10:42

Dweller, Inc. is considering a four-year project that has an initial after-tax outlay or after-tax cost of \$80,000. The future cash inflows from its project are \$40,000, \$40,000, \$30,000 and \$30,000 for years 1, 2, 3 and 4, respectively. Dweller uses the net present value method and has a discount rate of 12%. Will Dweller accept the project?

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1. 26 June, 11:01
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dweller accept the this project as NPV value is positive

Explanation:

Net present value (NPV) of the project is the total sum of the current value of all the outflows & inflows:

Accept if NPV is positive.

CF = cash flows

r = discount rate = 12%

NPV = - CF_0 + CF_1 / (1 + r) + CF_2 / (1 + r) ^2 + CF_3 / (1 + r) ^3 + CF_4 / (1+r) ^4

CF_0 = \$80000

CF_1 = \$40000

CF_2 = \$30000

CF_3 = \$30000

discount rate r = 12%

NPV = - 80000 + 40000 / (1 + 0.12) + 40000 / (1 + 0.12) ^2 + 30000 / (1 + 0.12) ^ 3 + 30000 / (1 + 0.12) ^4

NPV = - 80000 + 35714.29 + 31887.76 + 21353.41 + 19065.54

NPV = \$28020.99

therefore dweller accept the this project as NPV value is positive