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Vita-Chips Co. has invested in a new plant that will produce nutritious corn chips. The initial...

Vita-Chips Co. has invested in a new plant that will produce nutritious corn chips. The initial cost is $120 million. The company anticipates net cash flows of $60 million next year, $40 million, $20 million, $10 million, $5 million and then $0 over each of the following years. Vita-Chips require a 10% return per year on their investment. Calculate the net present value (NPV) of this investment. Should Vita accept the project? Please solve this without the use of excel and show the steps please !!

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Answer #1

Initial Cost(CF0) = $120 million

Net cash flow from year 1 to year 5 has been provided and after year 5 it will be zero.

Calculating the NPV of this investment(amount in millions of $):-

NPV = [Present value of Net Cashflow] - Initial Cost

NPV = [54.545 + 33.058 + 15.026 + 6.830 + 3.105] - 120

NPV = -$7.44 millions

So, the net present value (NPV) of this investment is -$7.44 million

- As the NPV of the Investment is negative, it should not be ACCEPTED

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