Question
In: Finance
CORRECTED. YEARS 0-4. (NO 5). RiverRocks, Inc., is considering a project with the following projected free...
CORRECTED. YEARS 0-4. (NO 5).
RiverRocks, Inc., is considering a project with the following
projected free cash flows:
Year 0 1 2 3 4
Cash Flow (in millions)
Yr 0 negative $ 50.0 Yr 1 $ 10.0 Yr 2 $ 20.0 Yr 3 $ 20.0 Yr 4 $
15.0
The firm believes that, given the risk of this project, the WACC method is the appropriate approach to valuing the project. RiverRocks' WACC is 12.0 %. Should it take on this project? Why or why not?
The net present value of the project is $ ____ million. (Round to three decimal places.)
Solutions
Expert Solution
No, RiverRocks should not take on this project as the NPV is negative and hence the project is not financially feasible.
The net present value of the project is - $1.359 million.
Calculations:
| Year (n) | Cash flow | 1+r | PVIF = 1/(1+r)^n | PV = Cash flow * PVIF |
| 0 | - 50.00 | 1.12 | 1.00000 | - 50.00 |
| 1 | 10.00 | 0.89286 | 8.93 | |
| 2 | 20.00 | 0.79719 | 15.94 | |
| 3 | 20.00 | 0.71178 | 14.24 | |
| 4 | 15.00 | 0.63552 | 9.53 | |
| Total | - 1.359 |
1+r = 1+12% = 1.12
PVIF = present value interest factor = 1/1.12^n
PV = cash flow*relevant PVIF for the year
jeff jeffy answered 5 months agoRelated Solutions
Assume that XYZ, Inc. Corporation, Inc. is considering a new project with the following projected cash...
Assume that XYZ, Inc. Corporation, Inc. is considering a new
project with the following projected cash flows:
Time zero: -150,000,000
Year 1: 110,000,000
Year 2: 85,000,000
Year 3: 90,000,000
Year 4: -40,000,000
Year 5: 150,000,000
The company has already spent $4,200,000 in research and
development funds to explore the new project. If the company
undertakes the new project it will also require that the company
abandon an existing project that produces $12,000,000 in cash flows
each year over the next...
Consider the following debt-free project for a machine: Physical Lifespan 5 years Capital Expense, Year 0...
Consider the following debt-free project for a machine: Physical
Lifespan 5 years Capital Expense, Year 0 $13,000 EBITDA / Year
$8,000 Cost of Capital 5.3% Tax Rate 22% Depreciation Life 4 years
What is the value of this project? Note: Report answer to 4 decimal
places, no rounding.
Dow Chemical is considering a project that is expected to last 4 years with the following...
Dow Chemical is considering a project that is expected to last 4
years with the following details: Year 1 revenues of $560,000
increasing at 5% per year thereafter. Costs for year 1 are $200,000
and are expected to increase at 6% per year thereafter. The project
will require new equipment valued at $400,000. This equipment will
be depreciated to zero using the straight-line depreciation method
over the 4-year life. Working capital at the firm will have to rise
to $50,000...
Consider the following project for Hand Clapper, Inc. The company is considering a 4-year project to...
Consider the following project for Hand Clapper, Inc. The
company is considering a 4-year project to manufacture clap-command
garage door openers. This project requires an initial investment of
$16.3 million that will be depreciated straight-line to zero over
the project’s life. An initial investment in net working capital of
$1,030,000 is required to support spare parts inventory; this cost
is fully recoverable whenever the project ends. The company
believes it can generate $13.5 million in pretax revenues with $5.4
million...
Consider the following project for Hand Clapper, Inc. The company is considering a 4-year project to...
Consider the following project for Hand Clapper, Inc. The
company is considering a 4-year project to manufacture clap-command
garage door openers. This project requires an initial investment of
$15.7 million that will be depreciated straight-line to zero over
the project’s life. An initial investment in net working capital of
$970,000 is required to support spare parts inventory; this cost is
fully recoverable whenever the project ends. The company believes
it can generate $12.3 million in revenues with $4.8 million in...
The FIN340 Company is evaluating a project with the following projected annual cash flows: Period 0:...
The FIN340 Company is evaluating a project with the following
projected annual cash flows: Period 0: ($450), Period 1: ($610),
Period 2: $120, Period 3: $630, Period 4: $850, Period 5: $250. The
company has a WACC of 12%. Calculate the Internal Rate of Return
(IRR) for this project.
There are two projects with the following cash flows. Years: 0 1 2 3 4 5...
There are two projects with the following cash flows.
Years: 0 1 2 3 4 5
Project 1: -210 125 125 175 175 -400
Project 2: 300 -95 -75 -125 -400 600
a. What are the NPVs of these two projects if market interest
rate is 3%?
b. With the interest rate of 6%, please modified these two
projects to let them have only one IRR for each one of them. (That
means the sign of cash flows of each project...
The Down Towner is considering a project with a life of 4 years that will require...
The Down Towner is considering a project with a life of 4 years
that will require $164,800 for fixed assets and $42,400 for net
working capital. The fixed assets will be depreciated using the
Year 2018 bonus depreciation method. At the end of the project, the
fixed assets can be sold for $37,500 cash and the net working
capital will return to its original level. The project is expected
to generate annual sales of $195,000 and costs of $117,500. The...
The Down Towner is considering a project with a life of 4 years that will require...
The Down Towner is considering a project with a life of 4 years
that will require $164,800 for fixed assets and $42,400 for net
working capital. The fixed assets will be depreciated using the
Year 2018 bonus depreciation method. At the end of the project, the
fixed assets can be sold for $37,500 cash and the net working
capital will return to its original level. The project is expected
to generate annual sales of $195,000 and costs of $117,500. The...
Considering the following projects. Project Year 0 1 2 3 4 A Cash flows -$100...
Considering the following projects.
Project
Year
0
1
2
3
4
A
Cash flows
-$100
$35
$35
$35
$35
B
Cash flows
-$100
$60
$50
$40
$30
If project B is risker than project A,
in which project A has WACC =
6.00% while project B has WACC = 8.50%.
If these two projects are mutually exclusive, which project
should the company accept?
Compute:
NPV, IRR, MIRR,
payback, and discounted payback
period for each project.
# please with details.
ADVERTISEMENT
ADVERTISEMENT
Latest Questions
- In the article from Forbes notes that the goal of a leader is not to clone...
- Many people keep time using a 24 hour clock (11 is 11am and 23 is 11pm,...
- UNIX ONLY -- DIFFICULT LAB ASSIGNMENT This is an extremely difficult subject for me. Could you...
- Do you know why your credit card can be refused even though you are profitable?
- The Following Java expression: S/10 * 10 + 10 – S = C Show that this...
- Year Cash Flow 0 −$9,700 1 5,800 2 2,500 3 3,400 &nb
- In a two – story building, an exterior column is to be designed for a service...
ADVERTISEMENT