Question

Chase, Inc. is considering an eight-year project that has an initial after-tax outlay or after-tax cost of $180,000. The future after-tax cash inflows from its project for years 1 through 8 are the same at $35,000. Chase uses the net present value method and has a discount rate of 12%. Will Chase accept the project?

Answer 1

Answer:

Rejected

Explanation:

The computation is shown below;

Given that

Initial investment = $180,000, A

nnual After-Tax Cash Flows = $35,000,

Number of Payments = 8

And Discount Rate = 12%

Based on the above information

Present value of After-Tax Cash Flows is

= $35,000 × (1 ÷ 0.12) × [1 - {1 ÷ (1.12)^(8)}]

= $173,867.39

And,

Net present value is

= $173,867.39 - $180,000

= - $6,133

So the project should be rejected as the net present value comes in negative