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MBA Tech, Inc. is negotiating with the mayor of the City to start a manufacturing plant in an abandoned building. The cash flows for the
MBA Tech, Inc. is negotiating with the mayor of the City to start a manufacturing plant in an abandoned building. The cash flows for the proposed plant are:
Year 0 Year 1 Year 2 Year 3 Year 4
-1,000,000 371,739 371,739 371,739 371,739
The City has agreed to subsidize MBAT. The form and timing of the subsidy have not been determined.
They depend on investment criterion used by MBAT.
4 alternatives have been suggestsed:
Subsidize the project to bring it IRR to 25%Subsidize the project to provide a 2-year paybackSubsidize the project to provide an NPV of $75,000 when cash flows are discounted at 20%Subsidize the project to provide an accounting rate of return (ARR) of 40%.
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