EXERCISE 1 [30 marks] Joan is considering opening a new plant. The plant will cost $200 million upfront. After that, it is expected to produce profits of $30 million in the first year, and $50 million each year for the following 6 years. A. Calculate the Net Present Value (NPV) of this investment opportunity if the cost of capital is 8%. [4 marks] B. Should Joan make the investment? Explain your reasoning. [3 marks] C. What is the payback period of this investment? [3 marks] D. Suppose the Internal Rate of Return (IRR) of this investment opportunity is 10%. Based I on this information, should Joan make the investment? Explain your reasoning. [6 marks] E. Suppose that, instead of paying the initial $200 million now, Joan decides to pay it in equal instalments over the next 5 years. How much would Joan need to pay each year to make all these payments be worth $200 million today? [6 marks] F. Now assume that an alternative project would generate immediate (time zero) net profits of $200 million upfront, but after that, you would incur net losses of $30 million in the first year, and $50 million each year for the following 6 years. The cost of capital is 8% and the IRR is 10%. Should you start this project? Explain your reasoning. [8 marks]