Question
Suppose an automotive company is considering expanding its operations to a new overseas market. The move will require $1,000,000,000 to build a new plant, sales
Suppose an automotive company is considering expanding its operations to a new overseas market. The move will require $1,000,000,000 to build a new plant, sales center, and local sales team. The company estimates it can generate $175,000,000 in sales in the first 8 years, followed by sales of $250,000,000 for 3 years, after which it expects to generate revenues of $300,000,000 per year for 9 years. However, during each year operating costs (labor, equipment, etc), will be $20,000,000. In year 10, the firm will need to spend an additional $25,000,000 to update its facilities. If the firms required rate of return is 17.25%, what is the net present value of the project? Draw a timeline with the appropriate net cash flows in each year.
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