RiverRocks, Inc., is considering a project with the following projected free cash flows: year 0 1...

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RiverRocks, Inc., is considering a project with the following projected free cash flows: year 0 1...

RiverRocks, Inc., is considering a project with the following projected free cash flows:

year	0	1	2	3	4
Cash flow millions	$-49.9	$9.9	$19.7	$19.1	$14.3

The firm believes that, given the risk of this project, the WACC method is the appropriate approach to valuing the project. RiverRocks' WACC is 12.7 %. Should it take on this project? Why or why not?

business finance

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Answer 1

Answer #1

NPV = -initial investment + PV of future cash flows

Present value = Future value/(1+i)^n

i = interest rate per period

n= number of periods

=>

NPV = -49.9 + 9.9/1.127 + 19.7/1.127^2 + 19.1/1.127^3 + 14.3/1.127^4

= -3.40

Reject the project since NPV is negative

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Answer 2

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