You are considering opening a new plant. The plant will cost $95.1 million up front and will take one year to build. After that it is expected to produce profits of $31.8 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 7.6%. Should you make the investment? Calculate the IRR and use it to determine the maximum deviation allowable in the cost of capital estimate to leave the decision unchanged. The NPV of the project will be $ million. (Round to one decimal place.) You are considering opening a new plant. The plant will cost $95.1 million up front and will take one year to build. After that itis expected to produce profits of $31.8 million at the end of every year of production. The cash flows are expected to lastforever. Calculate the NPV of this investment opportunity if your cost of capital is 7.6%. Should you make the investment?Calculate the IRR and use it to determine the maximum deviation allowable in the cost of capital estimate to leave thedecision unchanged.The NPV of the project will be $ million. (Round to one decimal place.)

Capital Budgeting plays a significant role in evaluating long term projects that facilitates the…

Answered: You are considering opening a new…

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter14: Real Options

Section: Chapter Questions

Problem 4MC

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You are considering opening a new plant. The plant will cost $95.1 million up front and will take one year to build. After that it is expected to produce profits of $31.8 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 7.6%. Should you make the investment? Calculate the IRR and use it to determine the maximum deviation allowable in the cost of capital estimate to leave the decision unchanged. The NPV of the project will be $ million. (Round to one decimal place.)

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