Answer:
the project should not be accepted because the NPV is negative
Explanation:
Net present value is the present value of after-tax cash flows from an investment less the amount invested.
Only projects with a positive NPV should be accepted. A project with a negative NPV should not be chosen because it isn't profitable.
When choosing between positive NPV projects, choose the project with the highest NPV first because it is the most profitable.
NPV can be calculated using a financial calculator
After tax cash flows = before tax cash flows x ( 1 - tax rate) + depreciation
Straight line depreciation expense = (Cost of asset - Salvage value) / useful life
($2,400,000 - $600,000) / 5 = $360,000
After tax cash flow = ($258,000 x 0.6) + $360,000 = $514,800
Cash flow each year from year 1 to 4 = $514,800
cash flow in year 5 = $514,800 + $600,000
i = 14%
npv = $-321,028.71
To find the NPV using a financial calculator:
1. Input the cash flow values by pressing the CF button. After inputting the value, press enter and the arrow facing a downward direction.
2. after inputting all the cash flows, press the NPV button, input the value for I, press enter and the arrow facing a downward direction.
3. Press compute
