Dutch Lumber Company is planning a project that is expected to last for eight years and generate annual net cash inflows of $85,000. The project will require the purchase of a $300,000 machine, which is expected to have a salvage value of $20,000 at the end of the eight year period. The machine will require a $65,000 overhaul at the end of the 5th year. The company presently has a 15% minimum desired rate of return.

Based on this information, an accountant prepared the following analysis:

Annual net cash inflow $85,000

Annual depreciation $35,000

Annual cost of overhaul 8,12543,125

Average annualincome$41,875

Return oninvestment=$41,875/300,00=13.96%

The accountant recommends that the project be rejected because it does not meet the company's minimum desired rate of return. Ignore income taxes.

Required:

A. What criticism(s) would you make of the accountant's evaluation? B. Use the net-present-value method and determine whether the project should be accepted.