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17 July, 16:18

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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  1. 17 July, 16:33
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    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
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