Question 3 (20 points) Acme Industries is considering building a plant. After an initial investment of $100 million, the plant will be completed in one year and then have the series of annual cash flows. After a year of start-up procedures, next year's cash flow will be $25 million (year 1 cashflow), but a perpetual annual cash flow stream of either $18 million or $2.7 million will occur each year thereafter, depending on whether the economy is good or bad one year from now. Acme's managers can decide to immediately invest the $100 million, or they can wait until next year to decide whether to build or not. Assume that the risk-free interest rate is 9% per year and that $1 invested in the market portfolio today will be worth either $1.3 (if the economy is good) or $0.7 (if the economy does poorly). (a) Compute the NPV of the project if the company invest the $100 million immediately. (b) Compute the NPV of the project if the company wait until next year to decide whether to build or not. (c) What is the true NPV of the project? (d) What is the minimum cashflow in year 1 such that it is better for the company to invest the project immediately? Question 3 (20 points) Acme Industries is considering building a plant. After an initial investment of $100 million, the plant will be completed in one year and then have the series of annual cash flows. After a year of start-up procedures, next year's cash flow will be $25 million (year 1 cashflow), but a perpetual annual cash flow stream of either $18 million or $2.7 million will occur each year thereafter, depending on whether the economy is good or bad one year from now. Acme's managers can decide to immediately invest the $100 million, or they can wait until next year to decide whether to build or not. Assume that the risk-free interest rate is 9% per year and that $1 invested in the market portfolio today will be worth either $1.3 (if the economy is good) or $0.7 (if the economy does poorly). (a) Compute the NPV of the project if the company invest the $100 million immediately. (b) Compute the NPV of the project if the company wait until next year to decide whether to build or not. (c) What is the true NPV of the project? (d) What is the minimum cashflow in year 1 such that it is better for the company to invest the project immediately