Waldrup Industries is considering a proposal for a joint venture that will require an investment of C$13 million. At the end of the fifth year, Waldrup’s joint venture partner will buy out Waldrup’s interest for C$10 million. Waldrup’s chief financial officer has estimated that the appropriate for this proposal is 12 percent. The expected cash flows are given below.
Year …………………………Cash Flow (C$)
0………………………… −13,000,000
1………………………… 3,000,000
2………………………… 3,000,000
3………………………… 3,000,000
4………………………… 3,000,000
5………………………… 10,000,000
A. Calculate this proposal’s NPV.
B. Make a recommendation to the CFO (chief financial officer) concerning whether Waldrup should enter into this joint venture.
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