Question
A company is considering a project that will last for 4 years with no residual value. The project has the following cash flows and details:
A company is considering a project that will last for 4 years with no residual value. The project has the following cash flows and details: Period 0: Cash flow = -$165,000 (Cost of project) Period 1: Cash flow = $85,000, Net Income = $47,500 Period 2: Cash flow = $66,000, Net Income = $28,500 Period 3: Cash flow = $50.000. Net Income = $12 500 Period 4: Cash flow = $50,000, Net Income = $12,500 Average Book Value = $82,500 The required annual return on projects of this risk is 16%. The company if trying to determine whether or not to accept this project. If they use the net present value (NPV) method of evaluation, will they accept the project? A. Yes, they will accept. B. No, they won't accept.
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