Lennon is considering a five year project that has an initial after tax outlay o

Question

Lennon is considering a five year project that has an initial after tax outlay or after cost of $800,000. The respective future cash inflows from it's project for years 1,2,3,4 and 5 are: $15,000, $25,000, $35,000, $45,000 and $55,000. Lennon uses the net present value method and has a discount rate of 9%. Will Lennon accept the project? A) Lennon accepts the project because the NPV is $129,455.25 B) Lennon accepts the project because the NPV is $79,455.25 C) Lennon accepts the project because the NPV is $49,455.25 D) Lennon accepts the project because the NPV is less than zero.

Explanation / Answer

NPV = -800000 + 15000/1.09 +25000/1.09^2 + 35000/1.09^3 + 45000/1.09^4 + 55000/1.09^5 = $ 49455.25 Answer: C)

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