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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 $85,000 of saved expenses per year minus income taxes after deducting depreciation. In the first year, the after-tax cash inflow is $85,000 minus taxes of $16,000 {[$85,000?– ($150,000 × 30%) depreciation] × 40%}, or $69,000. In the second year, the after-tax cash inflow is $85,000 minus taxes of $10,000 {[$85,000?– ? ($150,000 × 40%) depreciation] × 40%}, or $75,000. In the third year, the after-tax cash inflow (excluding salvage value) is again $69,000. Also in the third year, the after-tax cash inflow from the salvage value is $6,000 [$10,000 × (1 – 40%)]. Accordingly, the total for the third year is $75,000 ($69,000 + $6,000). The sum of these cash flows discounted using the factors for the present value of $1 at a rate of 16% is calculated as follows: $69,000 × .862 = $??59,478 $75,000 × .743 = 55,725 $75,000 × .641 = 48,075

Answer (A) is incorrect because Ignoring tax on the cash proceeds received from salvage value results in an NPV of $15,842.
Answer (C) is incorrect because The amount of $40,910 equals the present value of a 3-year annuity of $85,000 discounted at 16%, minus $150,000.
Answer (D) is incorrect because Failing to include the cash proceeds from salvage value results in an NPV of $9,432.