1. Carpenter Corporation is considering a project with an initial cost of $100,000. The pre-tax cash inflows in current dollars, without adjustment for inflation, are as follows.

Year: 1 2 3 4 5

Amount: $40,000 $30,000 $30,000 $30,000 $40,000

The estimate for inflation during this period is that it will be either 4%, with probability 30%; or 5%, with probability 70%. Accordingly, the company should adjust the cash flow projections upwards. The company is in 35% tax bracket and it uses a discount rate of 12%. Should it accept the project?