Lennon, Inc

question 13

Multiple Choice

Lennon, Inc. is considering a five-year project that has an initial after-tax outlay or after-tax cost of $80,000. The respective future cash inflows from its project for years 1, 2, 3, 4 and 5 are: $15,000, $25,000, $35,000, $45,000 and $55,000. Lennon uses the net present value method and has a discount rate of 9%. Will Lennon accept the project?

• A) Lennon accepts the project because the NPV is $129,455.25.
• B) Lennon accepts the project because the NPV is 79,455.25.
• C) Lennon accepts the project because the NPV is $49,455.25.
• D) Lennon accepts the project because the NPV is less than zero.

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Definitions:

Current Liabilities

Obligations that are due within one year or within the normal operating cycle of the business, whichever is longer.

Days' Sales In Inventory

Days' Sales in Inventory is a financial ratio that indicates the average time in days that a company takes to turn its inventory into sales.

Sales On Account

Transactions where goods or services are sold and payment is to be made at a later date, often recorded as accounts receivable.

Cost Of Goods Sold

The direct costs attributable to the production of the goods sold by a company, including the cost of materials and labor.