High-Top, Inc. is considering a four-year project that has an initial after-tax

ID: 2707602 • Letter: H

Question

High-Top, Inc. is considering a four-year project that has an initial after-tax outlay cost of $120,000. The future cash inflows from its project are $25,000, $30,000, $35,000 and $32,000 for years 1, 2, 3 and 4, respectively. High-Top uses the net present value method and has a discount rate of 12%. Will the company accept the project?

High-Top rejects the project because the NPV is greater than -$28,000.
           High-Top rejects the project because the NPV is -$3,021.
           High-Top accepts the project because the NPV is greater than $15,000.
           High-Top accepts the project because the NPV is greater than $28,000

Explanation / Answer

YEARS

CASHFLOWS

DISCOUNTING FACTOR

P.V @12%

(120000)

25000

0.8929

22323

30000

0.7972

23916

35000

0.7118

24913

32000

0.6355

20336

NPV =

(28512)

SINCE NPV IS NEGATIVE THE PROJECT IS NOT VIABLE AND THEREFORE SHOULD NOT BE ACCEPTED

ANSWER :- OPTION