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Answer (B) is correct . The NPV method discounts the expected cash flows from a project using the required rate of return. A project is acceptable if its NPV is positive. The future cash inflows consist of $170,000 of saved expenses per year minus income taxes after deducting depreciation. In the first year, the after-tax cash inflow is $170,000 minus taxes of $32,000 {[$170,000 – ($300,000 × 30%) depreciation] × 40%}, or $138,000. In the second year, the after-tax cash inflow is $170,000 minus taxes of $20,000 ? {[$170,000 – ($300,000 × 40%) depreciation] × 40%}, or $150,000. In the third year, the after-tax cash inflow is again $138,000. Also in the third year, the after-tax cash inflow from the salvage value is $12,000 [$20,000 × (1 – 40%)]. Accordingly, the sum of these cash flows discounted using the factors for the present value of $1 at a rate of 16% is $326,556. $138,000 × .862 = $118,956 $150,000 × .743 = 111,450 $150,000 × .641 = 96,150 Discounted cash inflows $326,556

Answer (A) is incorrect because The amount of $81,820 results from multiplying $170,000 by 2.246 and then subtracting $300,000.
Answer (C) is incorrect because The amount of $118,956 is the present value of Year?1 cash inflows.
Answer (D) is incorrect because The amount of $138,000 is the sum of the undiscounted cash flows minus $300,000.