Question: A project is expected to create after-tax operating cash flows of $25,000 a year for three years. The initial investment for fixed assets is $50,000.

A project is expected to create after-tax operating cash flows of $25,000 a year for three years. The initial investment for fixed assets is $50,000. These assets will be worthless at the end of the project. Assuming a required rate of return of 15% and a tax rate of 21%, which of the following statements is correct?

The NPV of the project is $7,081, its IRR is 23% and the project should be accepted.
The NPV of the project is -$4,906, its IRR 9% and the project should be rejected.
The project has a payback period of 2.53 years

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