If MacCaugh’s pilot project is successful, it will be able to build a plant with an...

If MacCaugh’s pilot project is successful, it will be able to build a plant with an NPV of $2 million in 1 year’s time. Otherwise the pilot investment will be valueless. If the discount rate is 20% and the chances of success are 50%, how much can MacCaugh afford to spend on the pilot project?

A. $1 million.

B. $2 million.

C. $1.667 million.

D. $833,333.

Solutions

Expert Solution

NPV of the project ( at T = 0 ) = Weighted average of present value of NPV

= 50% * [ 2,000,000 / 1.20 ] + 50% * 0

= 50% * 1,66,666.67

= $ 833,333.33 Answer

Option D is correct.

jeff jeffy answered 1 year ago

Next > < Previous

Related Solutions

Suppose that Apple is analyzing a project of opening a plant in Malaysia to build its...

Suppose that Apple is analyzing a project of opening a plant in Malaysia to build its smart electric cars. Apple projects cash flows of (Malaysian Ringgit) MR 10 million for 4 years and a Terminal value of 28 M as Apple doesn’t intend to stay in the car industry for long, instead Apple will sell the project at the end of year 4 at a cash flow of 28 M. The initial investment is evaluated at MR25 million. The Financial...

QWY company is looking to build a manufacturing plant overseas. Project = 5yrs The cost of...

QWY company is looking to build a manufacturing plant overseas. Project = 5yrs The cost of the land for this project is £6,500,000. The land can be sold for £4,500,000 in five years’ time, irrespective of what is built on it (ignore taxes). The manufacturing plant will cost £15,000,000. The company uses straight line method of depreciation and predicts to sell the plant for £5,000,000 (ignore taxes) at the end of the project. The expectation from the project is to...

A company is planning a plant expansion. They can build a large or small plant. The...

A company is planning a plant expansion. They can build a large or small plant. The payoffs for the plant depend on the level of consumer demand for the company's products. For the large plant, the company expects $90 million in revenue if demand is high and $40 million if demand is low. For the small plant, the company expects $55 million in revenue if demand is high and $20 million if demand is low. The cost of the large...

The city of Bloomington is about to build a new water treatment plant. Once the plant...

The city of Bloomington is about to build a new water treatment plant. Once the plant is designed (D) we can select the site (S), the building contractor (C and the operating personnel (P). Once the site is selected we may erect the building (B). We can order the water treatment machine (W) and prepare the operations manual (M) only after the contractor is selected. We can begin training the operators (T) when both the operations manual and operating personnel...

A manufacturer plans to open a new plant. The new plant will cost $4,000,000 to build...

A manufacturer plans to open a new plant. The new plant will cost $4,000,000 to build and make ready for production. Company management believes that the plant will produce a net profit of $130,000 in the first year and that profit will increase 5% per year until year 7 at which point profit will remain constant for the remainder of the plant’s useful life. Determine the payback period for the plant. Do not consider the effect of interest. Express your...

A large corporation has a plant that has started a pilot program to give stock options...

A large corporation has a plant that has started a pilot program to give stock options for its assembly line workers as part of their benefits package. The corporation would like to determine if the mean quality score for this plant exceeds the current average quality measure of 82. A random sample of 50 production units is selected from this plant and the quality scores for these units are obtained. The sample mean score for these units is 86 with...

1. The alpine sky pilot, Polemonium viscosum is a common flowering plant in the Rocky Mountains....

1. The alpine sky pilot, Polemonium viscosum is a common flowering plant in the Rocky Mountains. At high elevations, P. viscosum is pollinated mainly by B. kirbyellus bumblebees; At lower elevations, it is pollinated mainly by flies. A biologist observed that alpine sky pilot populations growing at higher elevations had significantly larger flower corollas than those growing at lower elevations. a) Explain why flower size would be likely to affect the fitness of sky pilots at different elevations. b) Explain...

. Define plant development and explain which main developmental processes are required to build a plant....

. Define plant development and explain which main developmental processes are required to build a plant. Indicate why plant development is an essential trait in agriculture giving some examples of developmental modifications selected throughout plant domestication.

What are the metrics for a successful project management?

Project Description The objective of this project is to design, simulate and build a speech filter....

Project Description The objective of this project is to design, simulate and build a speech filter. The design should operate on less that ±6 Volts DC. Please keep in mind that you should monitor the cost of the design components. Therefore you will need to determine the frequency band of speech and investigate low power options for the design. After reviewing the various tradeoffs which happens after design and simulations, you should then order the parts for the actual design....

Subjects