An electric utility company is considering a new power plant in northern New Mexico. Electricity generated at the plant would be sold in the Albuquerque market where it is badly needed. The firm has the possibility of building a plant that will meet their production needs for the next several years that will cost $300 M. They also have the option of building a larger facility that will have a higher production capacity and will allow them to sell some excess power to another utility company under a long-term contract. The larger facility will cost $600M. The anticipated cash flows for each plant are as follows:

Year Small Facility Cash Flow in Millions Large Facility Cash Flow in Millions 1 $150 $200 N $175 $225 UI - W $200 $250 $225 $275 $250 $300 $275 $325 $300 $350 8 $300 $375 $300 $400 10 $300 $450