Question

​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

​(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??

Homework Answers

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
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