Question
A corporation can invest $5 milion in a new produciotn plant. after construction of the plant, the price and the incremental in quantity sold will
A corporation can invest $5 milion in a new produciotn plant. after construction of the plant, the price and the incremental in quantity sold will be either $2.5 and 6 million in case of a boom, or $1.5 and 3 Million in cast of burst. there is a 40% probablity of bust the plant has an expected life of 5 years. incremental fixed cost are 2million a year, and variable costs are 1 per quantity sold. the plant will be depreciated under the prime cost method, and a salvage value is $1 million. the opportunity cost of capital is 12% and tax rate is 40%. what is the projects's NPV under the baseline assumption?
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