Detailed Answer
Answer (C) is correct. Annual cash outflow for taxes is $12,000 {[$70,000 inflows – $20,000 cash operating expenses – ($100,000 ÷ 5) depreciation] × 40%}. The annual net cash inflow is therefore $38,000 ($70,000 – $20,000 – $12,000). The present value of these net inflows for a 5-year period is $136,990 ($38,000 × 3.605 present value of an ordinary annuity for 5 years at 12%), and the NPV of the investment is $36,990 ($136,990 – $100,000 investment).