Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

DND manufactures disinfectant. It is thinking of establishing a factory in the US due to the government's newfound enthusiasm for the product. But, you are

DND manufactures disinfectant. It is thinking of establishing a factory in the US due to the government's newfound enthusiasm for the product. But, you are concerned the government might seize your facilities under the Defense Production Act of 1950 (DPA). You expect demand will only remain in place for two years. So, you intend to close the facilities in two years time.

The cash flows for the first year are 10.5 if DND survives and 7.1 if the DPA is invoked. They are 12.3 if DND survivesand 2.1 if it the DPA is invoked. The company shuts down thereafter; there are no further cash flows. You think there is 48.3% chance of the act being invokedin year 1 and 7.3% chance of it being invoked in year 2. The discount rate is 6.4% p.a.

What is the project's NPV?

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Data Analysis And Decision Making

Authors: Christian Albright, Wayne Winston, Christopher Zappe

4th Edition

538476125, 978-0538476126

More Books

Students also viewed these Finance questions

Question

6.2 What is potential? Why, and how, should we measure it?

Answered: 1 week ago