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 discount rate for this proposal is 12 percent. The expected cash flows are given below.
|
Year
|
Cash Flow
|
|
0
|
-C$13,000,000
|
|
1
|
C$3,000,000
|
|
2
|
C$3,000,000
|
|
3
|
C$3,000,000
|
|
4
|
C$3,000,000
|
|
5
|
C$10,000,000
|
A. Calculate this proposal"s NPV.
B. Make a recommendation to the CFO (chief financial officer) concerning whether Waltham should enter into this joint venture.