Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

You are considering opening a new plant. The plant will cost $99.5 million upfront and will take one year to build. After that, it is

image text in transcribed
image text in transcribed
You are considering opening a new plant. The plant will cost $99.5 million upfront and will take one year to build. After that, it is expected to produce profits of $29.2 million at the end of every year of production. The cash flows are expected to last forever. Calculate the NPV of this investment opportunity if your cost of capital is 8.1%. Should you make the investment? Calculate the IRR. Does the IRR rule agree with the NPV rule? Years N 2 Forever 3 ST 29.2 29.2 Cash Flow ($ million) -99.5 29.2 N Calculate the NPV of this investment opportunity if your cost of capital is 8.1%. The NPV of this investment opportunity is $ million. (Round to one decimal place.) Should you make the investment? (Select the best choice below. O A. No, because the NPV is not greater than the initial costs. OB. Yes, because the project will generate cash flows forever. OC. Yes, because the NPV is positive OD. No, because the NPV is less than zero. Calculate the IRR. The IRR of the project is %. (Round to two decimal places.) The IRR of the project is %. (Round to two decimal places.) Does the IRR rule agree with the NPV rule? (Select the best choice below.) O A. Since the IRR exceeds the 8.1% discount rate, the IRR rule gives the same answer as the NPV rule. OB. Since the IRR is less than the 8.1% discount rate, the IRR rule gives the same answer as the NPV rule. O C. Since the IRR exceeds the 8.1% discunt rate, the IRR rule gives a different answer than the NPV rule. OD. Since the IRR is less than the 8.1% discount rate, the IRR rule gives a different answer than the NPV rule. Click to select your answer(s). Id A 9 w pax]

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

Financial Times Guide To The Financial Markets

Authors: Glen Arnold

1st Edition

0273730002, 978-0273730002

More Books

Students also viewed these Finance questions

Question

Identify cultural barriers to communication.

Answered: 1 week ago