You are considering opening a new plant. The plant will cost $100.9 million up front and will take one year to build. After that it is expected to produce profits of $28.7 million at the end of every year of production. The cash flows are expected to last forever. Calculate the NPV of this investment opportunity if your cost of capital is 7.2%. Should you make the investment? Calculate the IRR and use it to determine the maximum deviation allowable in the cost of capital estimate to leave the decision unchanged. The NPV of the project will be $ You million. (Round to one decimal place.) make the investment. (Select from the drop-down menu.) The IRR is%. (Round to two decimal places.) The maximum deviation allowable in the cost of capital estimate is%. (Round to two decimal places.)

You are considering opening a new plant. The plant will cost $100.9 million up front and will take one year to build. After that it is expected to produce profits of $28.7 million at the end of every year of production. The cash flows are expected to last forever. Calculate the NPV of this investment opportunity if your cost of capital is 7.2%. Should you make the investment? Calculate the IRR and use it to determine the maximum deviation allowable in the cost of capital estimate to leave the decision unchanged. The NPV of the project will be $ You million. (Round to one decimal place.) make the investment. (Select from the drop-down menu.) The IRR is%. (Round to two decimal places.) The maximum deviation allowable in the cost of capital estimate is%. (Round to two decimal places.)

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter14: Real Options

Section: Chapter Questions

Problem 3MC: Tropical Sweets is considering a project that will cost $70 million and will generate expected cash...

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Tropical Sweets is considering a project that will cost $70 million and will generate expected cash flows of $30 million per year for 3 years. The cost of capital for this type of project is 10%, and the risk-free rate is 6%. After discussions with the marketing department, you learn that there is a 30% chance of high demand with associated future cash flows of $45 million per year. There is also a 40% chance of average demand with cash flows of $30 million per year as well as a 30% chance of low demand with cash flows of only $15 million per year. What is the expected NPV?
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