Part 1Whitewater Limited is considering a project with the following projected free cash flows:[table]
Year | 0 | 1 | 2 | 3 | 4 Cash Flow (in millions) | negative $ 49.5−$49.5 | $ 9.4$9.4 | $ 19.6$19.6 | $ 19.3$19.3 | $ 15.8$15.8
[/table]The firm believes that, given the risk of this project, the WACC method is the appropriate approach to valuing the project. Whitewater's WACC is 12.8 %12.8%. Should it take on this project? Why or why not? Part 1The timeline for the project's cash flows is: (Select the best choice below.) A. Cash flow left parenthesis millions right parenthesisCash flow (millions)negative $ 49.5−$49.5$ 9.4$9.4$ 19.6$19.6$ 19.3$19.3$ 15.8$15.8 YearYear0011223344 Your answer is correct.B. Cash flow left parenthesis millions right parenthesisCash flow (millions)$ 49.5$49.5negative $ 9.4−$9.4negative $ 19.6−$19.6negative $ 19.3−$19.3negative $ 15.8−$15.8 YearYear0011223344 C. Cash flow left parenthesis millions right parenthesisCash flow (millions)negative $ 49.5−$49.5negative $ 9.4−$9.4negative $ 19.6−$19.6negative $ 19.3−$19.3negative $ 15.8−$15.8 YearYear0011223344 D. Cash flow left parenthesis millions right parenthesisCash flow (millions)$ 49.5$49.5$ 9.4$9.4$ 19.6$19.6$ 19.3$19.3$ 15.8$15.8 YearYear0011223344 Part 2The net present value of the project is $[input]enter your response here million. (Round to two decimal places.)

Question

Part 1Whitewater Limited is considering a project with the following projected free cash​ flows:[table]
Year | 0 | 1 | 2 | 3 | 4 Cash Flow ​(in millions) | negative $ 49.5−$49.5 | $ 9.4$9.4 | $ 19.6$19.6 | $ 19.3$19.3 | $ 15.8$15.8
[/table]The firm believes​ that, given the risk of this​ project, the WACC method is the appropriate approach to valuing the project.​ Whitewater's WACC is 12.8 %12.8%. Should it take on this​ project? Why or why​ not? Part 1The timeline for the​ project's cash flows​ is: ​(Select the best choice​ below.) A. Cash flow left parenthesis millions right parenthesisCash flow (millions)negative $ 49.5−$49.5$ 9.4$9.4$ 19.6$19.6$ 19.3$19.3$ 15.8$15.8 YearYear0011223344 Your answer is correct.B. Cash flow left parenthesis millions right parenthesisCash flow (millions)$ 49.5$49.5negative $ 9.4−$9.4negative $ 19.6−$19.6negative $ 19.3−$19.3negative $ 15.8−$15.8 YearYear0011223344 C. Cash flow left parenthesis millions right parenthesisCash flow (millions)negative $ 49.5−$49.5negative $ 9.4−$9.4negative $ 19.6−$19.6negative $ 19.3−$19.3negative $ 15.8−$15.8 YearYear0011223344 D. Cash flow left parenthesis millions right parenthesisCash flow (millions)$ 49.5$49.5$ 9.4$9.4$ 19.6$19.6$ 19.3$19.3$ 15.8$15.8 YearYear0011223344 Part 2The net present value of the project is ​$[input]enter your response here million. ​(Round to two decimal​ places.)

BlackTom AI · Accepted Answer

Net present value (NPV) is the sum of each cash flow discounted to today at the project’s required return (WACC = 12.8%). Use CF0 = −49.5 and CF1–CF4 as given.

Step 1 — discount factors:
1 + r = 1.128
(1.128)^1 = 1.128
(1.128)^2 = 1.272384
(1.128)^3 = 1.435249152
(1.128)^4 = 1.618961043456

Step 2 — present value of each cash flow (showing intermediate division):
PV1 = 9.4 / 1.128 = 8.33333
PV2 = 19.6 / 1.272384 ≈ 15.39316
PV3 = 19.3 / 1.435249152 ≈ 13.44715
PV4 = 15.8 / 1.618961043456 ≈ 9.75935

Step 3 — sum the discounted cash inflows:
Sum PV inflows = 8.33333 + 15.39316 + 13.44715 + 9.75935 = 46.93299 (in millions)

Step 4 — compute NPV:
NPV = PV inflows + CF0 = 46.93299 + (−49.5) = −2.56701 ≈ −2.56 million (rounded to two decimals)

Why this answer is correct: the calculated NPV is negative (−2.56 million), meaning discounted inflows do not fully recover the initial outlay at the firm’s WACC of 12.8%. Therefore the project destroys value and should be rejected.

Multiple-choice timeline justification:
- Choice A is correct because it shows the initial outflow (−49.5 at year 0) followed by the four positive inflows in years 1–4.
- B and D are incorrect because they reverse signs (showing an initial inflow or all positives).
- C is incorrect because it shows all cash flows as outflows (all negative), which does not match the provided projected inflows.

Conclusion: The NPV rounds to −2.56 million, matching the provided answer (−2.56), so the project should not be undertaken.

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If a project has a net present value equal to zero, then:

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