A proposed automotive plant will produce automobiles in Brazil. The Brazilian currency is the real. The following facts apply.

Initial investment ; rises by 20% each year Price of automobile per vehicle Cost per vehicle or R18,000 with equal probability Production vehicles per year forever Discount rate

a. Suppose production costs are determined exogenously by government fiat and will be known with certainty in one year.
Management must decide whether to begin production today or in one year. Calculate: (1) the NPV of investing today as if it were a now-or-never alternative, (2) the NPV (at ) of waiting one year before making a decision, and (3) the NPV of investing today, including all opportunity costs.

b. Suppose this investment is 1 of 10 plants with identical characteristics that could be built. The outcome from your initial investment will provide information about the production costs that will be incurred at other sites. Calculate:
(1) the NPV of investing today in all 10 sites as if it were a now-or-never alternative, (2) the NPV (at ) of investing in one factory today and then waiting one year before making a decision on the other nine factories, and (3) the NPV of investing today, including all opportunity costs.