Final answer:
The NPV of the project in question is $102 million. This is calculated by discounting the future cash flows of a project at the company's cost of capital, which is a standard way to assess the project's value in present terms.
Step-by-step explanation:
The question asks to calculate the Net Present Value (NPV) of a project when the company's cost of capital is 25% and the risk-free interest rate is 8%. According to the given reference information, the NPV of this project would be $102 million. Calculation of NPV typically involves discounting the projected cash flows of a project by the cost of capital to determine the value of the investment in present terms.
In scenarios with different interest rates, the company considers the societal return and modifies its effective rate of return accordingly. For instance, if the interest rate is 9% and there is an additional return to society of 5%, the firm will consider its effective rate of return as 4% and therefore will make an investment of $183 million. In financial analysis, calculating NPV plays a crucial role as it helps determine the profitability and feasibility of investments or projects.