Question
In: Finance
WW Industries is considering a proposal for a joint venture that will require an investment of...
WW Industries is considering a proposal for a joint venture that will require an investment of $13 million. At the end of the 5th year, WWI’s joint venture partner will buy out WWI’s interest for $10 million. WWI’s CFO has estimated that the appropriate discount rate for this proposal is 12%.
a. Calculate the NPV for this proposal
b. Construct a table and graph the NPV Profile for interest rates between 1% and 25%
c. Make a recommendation to the CFO concerning whether WWI should enter into this joint venture.
The expected cash flows are given below.
Year Cash Flow
0 -13,000,000
1 3,000,000
2 3,000,000
3 3,000,000
4 3,000,000
5 10,000,000
Solutions
Expert Solution
NPV = Total of PV of Cash Inflows - PV of Cash Outflows
Sum of PV of Cash Inflow = Cash Flow1 / (1 + Discount Rate)1 + Cash Flow2 / (1 + Discount Rate)2 + ..... + Cash Flown / (1 + Discount Rate)n
The CFO should enter into this JV because at the current discount rate of 12%, the NPV of the project is positive
jeff jeffy answered 2 years agoRelated Solutions
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