Question

What is the net present value of the project?

River Rocks, Inc., is considering a project with the following projected free cash flows: Year 1 2 3 Cash Flow - $50.9 $10.3 $19.6 $20.3 (in millions) 4 $20. $15.2 The firm believes that, given the risk of this project, the WACC method is the appropriate approach to valuing the project. River Rocks' WACC is 12.8%. Should it take on this project? Why or why not? Tuul O B. Cash Flows (millions) $50.9 $10.3 $19.6 $20.3 $15.2 Year 3 4 1 $10.3 2 $19.6 C. Cash Flows (millions) - $50.9 $20.3 $15.2 3 Year O D. Cash Flows (millions) $50.9 - $10.3 $19.6 - $20.3 - $15.2 Year The net present value of the project is $ million. (Round to three decimal places.)

Answer 1

Solution:
	The net present value of the project is             $	-2.832	million
Notes:	No project should not be taken as it is not able to generate positive NPV, means the project cash flows are the able to give required rate of return the WACC by showing -ve NPV . So project should not be taken.
Working Notes:
	WACC is used to discount cash flows of the project to get Net present value of the project.
Year	Cash Flows	PVF @ 12.8%	Present Value
0	-50.9	1	-50.9
1	10.3	0.886524823	9.131205674
2	19.6	0.785926261	15.40415472
3	20.3	0.696743139	14.14388573
4	15.2	0.617680088	9.38873734
		NPV	-2.832
Notes: PVF is calculated @ 12.8% = 1/(1+0.128)^n     where n is the period for which PVF is calculated.
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