Question

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

Year	0	1	2	3	4
Cash Flow ​(in millions)	−$50.2	$9.1	$19.9	$20.8	$14.2

The firm believes​ that, given the risk of this​ project, the WACC method is the appropriate approach to valuing the project.​ RiverRocks' WACC is

11.4 %. What is the net present value of this project in millions??

Answer 1

Ans.	Year	Cash inflows	P V @ 11.4%	P V of cash inflow
	1	$9.10	0.8977	$8.17
	2	$19.90	0.8058	$16.04
	3	$20.80	0.7233	$15.05
	4	$14.20	0.6493	$9.22
	Total present value of cash inflows			$48.47
	Net present value = Present value of cash inflows - Initial investment
			$48.47 - $50.20
			-$1.73	million
	*Calculation of P V @ 11.4%
	Year		P V @ 11.4%
	1	1 / (1 + 0.114)^1	0.8977
	2	1 / (1 + 0.114)^2	0.8058
	3	1 / (1 + 0.114)^3	0.7233
	4	1 / (1 + 0.114)^4	0.6493