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1. You are considering opening a new plant. Then plant will cost 20 million up front. It is expected to produce a cashflow of 6
1. You are considering opening a new plant. Then plant will cost 20 million up front. It is expected to produce a cashflow of 6 million next year. The cash flows will grow at a rate of 2%. There are 3 million shares outstanding. (show work)
a. calculate NPV if cost of capital is 6%
b. current stock price is $60. What is the impact of this project on stock price?
C. Draw NPV vs r graph, calculate IRR and locate on graph.
d. based on graph C, discuss whether you would accept or deny proposal if cost of capital was between 3% and 5%. Justify answer.
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