RiverRocks, Inc., is considering a project with the f ollowing projected free ca

Question

RiverRocks, Inc., is considering a project with the f ollowing projected free cash flows Year Cash Flow (in millions) $9.7 $19.6 $19.2 $14.9 - $49.7 The firm believes that, given the risk of this project, the WACC method is the appropriate approach to valuing the project. RiverRocks' WACC is 11.8%. Should it take on this project? Why or why not? The timeline for the project's cash flows is: (Select the best choice below.) ( A. Cash Flows (millions) -$49.7 - $19.6 - $19.2 - $14.9 -$9.7 4 Year - $9.7 - $19.6 - $19.2 - $14.9 $49.7 0 B. Cash Flows (millions) 4 Year $49.7 $9.7 $19.6 $19.2 $14.9 ( C. Cash Flows (millions) Year $9.7 $19.6 $19.2 $14.9 -$49.7 0 D. Cash Flows (millions) Year The net present value of the project is million. (Round to three decimal places.) Click to select vour answerls

Explanation / Answer

a) Timeline for project's cash flows:

Negative (-) sign shows cost of investment.If Cash flows does not have any sign that it means it is positive (+) cash flows.Positive Cash flows means cash inflows.

b) Net Present Value   $ - 2.066 Million.

The Project has negative Net Present Value.So, This project should not be taken.

Working:

Amounts are in millions.

D. Cash Flows (millions) -$ 49.7 $ 9.7 $ 19.6 $ 19.2 $ 14.9 Year 0 1 2 3 4

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