Can someone help me out with a couple things about NPV on here? I know NPV takes

Question

Can someone help me out with a couple things about NPV on here?  I know NPV takes the sum of the present values of all future cash flows and that's the discounted cash flow, and then after that you are suppose to subtract the cost of the project.  So would it be -647 million to start, then add 175 million after that (and how long would that be stretched out?)?  Also, what is the discount rate suppose to be?  

Here's the entire problem below:

The parent company's management has made it clear to its subsidiaries that it wants a plan for growth. They expect a minimum 12% return on their assets. Currently they have assets of $2000 million financed by debt of $800 million at 6% and equity of $120 million with a required return of 16.75%. Profits are expected to be $240 million.

The corporate treasurer invests excess cash in money market funds earning 4%. The tax rate is 10%. Expected inflation is zero. All projects are financed at the current debt/equity ratio.

Management has presented two mutually exclusive corporate investment proposals to their parent company.
• Remodel existing stores
• 50 new stores expansion

Costs
Depreciation: Remodel (20)...Add New (57)
Planning costs: Remodel (60)..Add New (60)
Construction costs: Remodel (225)...Add New (400)

Revenues
Net operating cash flow (after taxes): Remodel (75)... Add New (100)

-New stores last 7 years before requiring remodeling.
-Remodeling is only effective for 5 years.
-There is not a salvage value.
-Note all numbers are in millions.

Evaluate this proposal
• Analyze using DCF techniques (Net Present Value, Interest Rate Reinvestment, Profitability Index, Equivalent Annual Annuity & Payback)

 Discuss results and make a recommendation.

Explanation / Answer

This is actually a relatively long problem so I'm not going to do the whole thing (unless you repost it for more than 75 karma), but I will address the questions in the first paragraph. I don't know where you are getting the numbers -647 million and 175 million so I'm just going to go with it... If the project costs $647 million in initial costs, this one of the present values (unless you've already totaled them). The $175 million cash flow wouldn't be "stretched out" as you claim. This is either a present value, or it needs to be discounted to a present value based on when it will be received. We discount the cash flows to the present value, so that we can compare them to each other. The discount rate in this problem is 12%. This is the minimum return they want on their assets. If I spend $100 today, I will expect $112 in return, sometime in the future. Therefore, if I know I will be receiving $112 tomorrow, and I want a minimum of 12% return, I will invest my money in the project. Sorry if this doesn't help you... post it again and I'll look at it later.

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