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Are the accountants computations correct

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Slick Company is considering a capital project involving a $225,000 investment in machinery and a $45,000 investment in working capital. The machine has an expected useful life of 10 years and no salvage value. The annual cash inflows (before taxes) are estimated at $90,000 with annual cash outflows (before taxes) of $30,000. The company uses straight-line depreciation. Assume the federal income tax rate is 40%.

The company's new accountant computed the net present value of the project using a minimum required rate of return of 16% (the company's cost of capital). The accountant's computations follow:

Cash inflows $90,000

Cash outflows $30,000

Net cash inflow $60,000

Present value factor at 16% X4.833

Present value of net cash inflow $289,980

Initial cash outlay $225,000

Net present value $64,980

Question 1. Are the accountant's computations correct? If not, compute the correct net present value.

Question 2. Is this capital project acceptable to the company? Why or why not?

Reference no: EM132501089

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