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The following project is under consideration by Riviera Holdings Corp. Riviera's requires a 15% rate of...

The following project is under consideration by Riviera Holdings Corp. Riviera's requires a 15% rate of return on projects of this nature.

CF0: -$17,000,000

CF1: +$10,000,000

CF2: +$8,000,000

CF3: +$4,000,000

CF4: +$6,000,000

What is the net present value of the project?

What is the profitability index of the project?

Solutions

Expert Solution

Net Present Value= Present value of cash inflow-Present value of cash outflow

=20805385.92-17000000

=$3805385.92

The Npv of the project is $3805385.92. i.e, the project is acceptable because of the positive NPV.

Profitability index=Present value of cash inflow/Present value of cash outflow

=20805385.92/17000000

=1.22

The Profitability Index is 1.22 is above standard 1. so the project is acceptable

jeff jeffy answered 1 year ago
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