Project Evaluation Fun Time!
Will Sandstone accept the project?
Sandstone, Inc. is considering a four-minus-year project with an initial after-tax outlay of $80,000 and future cash inflows of $40,000, $40,000, $30,000, and $30,000 for years 1, 2, 3, and 4, respectively. Sandstone uses the net present value method and has a discount rate of 12%.
What will Sandstone do with this exciting project?
a. Sandstone rejects the project because the NPV is less than -$4,000.
b. Sandstone accepts the project because the NPV is greater than $30,000.
c. Sandstone rejects the project because the NPV is -$3,021.
d. Sandstone accepts the project because it has a positive NPV of over $28,000.
Answer:
The correct answer is d. Sandstone accepts the project because it has a positive NPV of over $28,000. Good luck! ❤️
Sandstone, Inc. has decided to accept the project due to its positive Net Present Value (NPV) of over $28,000. This means that the project is expected to generate more value than the initial investment of $80,000, taking into account the future cash inflows and the discount rate of 12%.
By using the NPV method, Sandstone was able to evaluate the profitability of the project and make an informed decision. The positive NPV indicates that the project is expected to add value to the company and contribute to its financial success.
This exciting project will bring in cash inflows of $40,000, $40,000, $30,000, and $30,000 over the four-year period, making it a lucrative investment for Sandstone, Inc.
Congratulations to Sandstone for making a wise decision in accepting this project with such a positive NPV. It's time to celebrate and reap the rewards of this profitable adventure!