Starr, Co. is considering a five-year project that has an initial after-tax outl

Question

Starr, Co. is considering a five-year project that has an initial after-tax outlay of $250,000. The respective future cash inflows from its project for years 1, 2, 3, 4 and 5 are: $55,000, $55,000, $42,000, $43,000 and $81,000. Starr uses the net present value method and has a discount rate of 11%. Will Starr accept the project? Answer                                                   
           Starr rejects the project because the NPV is less than zero.                             
           Starr accepts the project because the NPV is $129,455.25.                             
           Starr accepts the project because the NPV is 79,455.25.                             
           Starr rejects the project because the NPV is $49,455.25. Starr, Co. is considering a five-year project that has an initial after-tax outlay of $250,000. The respective future cash inflows from its project for years 1, 2, 3, 4 and 5 are: $55,000, $55,000, $42,000, $43,000 and $81,000. Starr uses the net present value method and has a discount rate of 11%. Will Starr accept the project? Starr, Co. is considering a five-year project that has an initial after-tax outlay of $250,000. The respective future cash inflows from its project for years 1, 2, 3, 4 and 5 are: $55,000, $55,000, $42,000, $43,000 and $81,000. Starr uses the net present value method and has a discount rate of 11%. Will Starr accept the project? Starr rejects the project because the NPV is less than zero. Starr accepts the project because the NPV is $129,455.25. Starr accepts the project because the NPV is 79,455.25. Starr rejects the project because the NPV is $49,455.25.                             
           Starr rejects the project because the NPV is less than zero.                             
           Starr accepts the project because the NPV is $129,455.25.                             
           Starr accepts the project because the NPV is 79,455.25.                             
           Starr rejects the project because the NPV is $49,455.25.

Explanation / Answer

YEARS

CASHFLOWS

DISCOUNTING FACTOR

P.V @ 11%

0

(250000)

(250000)

1

55000

0.9009

49550

2

55000

0.8116

44638

3

42000

0.7312

30710

4

43000

0.6587

28324

5

81000

0.5935

48074

     NPV =

(48705)

ANSWER = OPTION-A-Starr rejects the project because the NPV is less than zero.

YEARS

CASHFLOWS

DISCOUNTING FACTOR

P.V @ 11%

0

(250000)

(250000)

1

55000

0.9009

49550

2

55000

0.8116

44638

3

42000

0.7312

30710

4

43000

0.6587

28324

5

81000

0.5935

48074

     NPV =

(48705)

ANSWER = OPTION-A-Starr rejects the project because the NPV is less than zero.

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