Rocket Red,Inc

question 95

Multiple Choice

Rocket Red,Inc.is considering a five-year project that has initial after-tax outlay or after-tax cost of $170,000.The future after-tax cash inflows from its project for years 1 through 5 are $45,000 for each year.Rocket Red uses the net present value method and has a discount rate of 11.25%.Will Rocket Red accept the project?

• A)Rocket Red accepts the project because the NPV is about $5,455.
• B)Rocket Red accepts the project because the NPV is about $165,275.
• C)Rocket Red rejects the project because the NPV is about -$4,725.
• D)Rocket Red rejects the project because the NPV is about -$154,725.

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Definitions:

Plant Derecognition

Occurs when a fixed asset is removed from the financial statements because it has been disposed of, sold, or is no longer in use and does not provide future economic benefits.

Deferred Tax Liability

A tax obligation that arises when taxable income will be higher in future periods due to temporary differences in accounting methods.

Tax Effect

The impact financial transactions have on the amount of tax payable by an individual or corporation.