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Net Present Value
Beta 0.95
Market risk premium 9% Risk free 5% Project will generate after tax cash flows for $340,000 at yearend after 5 years Investment 1.2 million If the project has the same risk as the firm as a whole. Should Furniture Depot, undertake the project? :confused: |
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Hi maritza... if I correctly understand your question that there is going to be only 1 cash flow of $340,000 at the end of year 5 and that is it... then this project is not viable at all as it will yield negative NPV of $(1,019,491). But if the question says that cash flows will continue forever after the end of year 5 then we will use the perpetuity formula and project would be viable and give positive NPV of $ 309,354. Hope it will help you out
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