NPV OF A PROJECT WITH NON-UNIFORM CASH FLOWS

Determine the NPV of the following project for Company X. The project is equally as risky as the company itself. The project will cost $20 million to get running in the first year. The cash flows produced from the project will be: 

$1M in year 1 

$2M in year 2

$4M in year 3

$5M in years 4-10

At the end of 10 years the project will end with zero salvage value. 

The company stock currently has a beta of 1.25 and the expected return of the market is 8%. The company currently operates with 45% debt financing and t-bills are currently returning 4%. The expected return on debt is 6.5%. The company operates in a 35% tax bracket. What is the NPV and should the company invest in this project? Why or why not?