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Cold One Brewery is considering a project that has an initial after-tax outlay or after tax...

Cold One Brewery is considering a project that has an initial after-tax outlay or after tax cost of $700,000. The respective future cash inflow’s from this four-year project for years 1 through 4 are: $195,000, $168,000, $230,000, $280,000, respectively. Cold one has a cost of capital of 11%. Will cold one accept this project?

  1. Rejects this project because because NPV is below $-100,000

  2. Rejects this project because the NPVis between -$20,000 and -$50,000

  3. Accepts this project because the NPV is greater than the IRR

  4. Accepts this project because the NPV is between $10,000 and $40,000

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Answer #1
Discount rate 11.000%
Year 0 1 2 3 4
Cash flow stream -700000 195000 168000 230000 280000
Discounting factor 1.000 1.110 1.232 1.368 1.518
Discounted cash flows project -700000.000 175675.676 136352.569 168174.018 184444.673
NPV = Sum of discounted cash flows
NPV Project = -35353.07
Where
Discounting factor = (1 + discount rate)^(Corresponding period in years)
Discounted Cashflow= Cash flow stream/discounting factor

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