Washington Industries Inc. is considering a project that has an initial after-ta

Question

Washington Industries Inc. is considering a project that has an initial after-tax outlay or after-tax cost of $350,000. The respective future cash inflows from its five-year project for years 1 through 5 are $75,000 each year. Washington expects an additional cash flow of $50,000 in the fifth year. The firm uses the net present value method and has a discount rate of 10%. Will Washington accept the project? Washington accepts the project because it has an NPV greater than $5,000. Washington rejects tire project because it has an NPV less than $0. Washington accepts the project because it has an NPV greater than $18,000. There is not enough information to make a decision.

Explanation / Answer

year cash flow present value@10% present value of cash flow 1 75000 0.9090909 68181.818 2 75000 0.8264463 61983.471 3 75000 0.7513148 56348.61 4 75000 0.6830135 51226.009 5 125000 0.6209213 77615.165 sum of present value of cash flow 315355.07 cashoutflow 350000 NPV -34644.93 answer reject the project B

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