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.