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Use the following information to answer the next two questions. The following project is under consideration...

Use the following information to answer the next two questions. The following project is under consideration by Riviera Holdings Corp. Riviera's requires a 13% rate of return on projects of this nature.

Year 0: Cash Flow -$17,000,000

Year 1: Cash Flow +$10,000,000

Year 2: Cash Flow +$8,000,000

Year 3: Cash Flow +$4,000,000

Year 4: Cash Flow +$6,000,000

What is the net present value of the project?

a. $ 3.81M

b. $ 4.38M

c. $ 5.16M

d. $11.00M

e. $ 4.57M

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Homework Answers

Answer #1

NPV = sum of present values of cash flows

Present value of each cash flow = cash flow / (1 + discount rate)n

where n = number of years after which the cash flow occurs

NPV = $4.57 million

The answer is (e)

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