Question

In: Finance

An auto plant that costs $50 million to build can produce a new line of cars...

An auto plant that costs $50 million to build can produce a new line of cars that will produce net cash flow of $35 million per year if the line is successful, but only $1 million per year if it is unsuccessful. You believe that the probability of success is about 20 percent. The auto plant is expected to have a life of 12 years and the opportunity cost of capital is 10 percent. What is the expected net present value of building the plant? Please state your answer in millions and in 2 decimal places.

Solutions

Expert Solution

jeff jeffy answered 2 years ago
Next > < Previous

Related Solutions

Solar Co. is evaluating a proposal to build a new solar plant. The new plant costs...
Solar Co. is evaluating a proposal to build a new solar plant. The new plant costs $225 million today (at t = 0), and the expected salvage value of the plant in eight years is $43 million (at t = 8). Based on these assumptions, the NPV of this project is $20 million. Now suppose the project team made an error, and the expected salvage value of the plant is zero in eight years (at t = 8). By how...
Suppose that an electricity provider would build a power plant at the cost of $50 million....
Suppose that an electricity provider would build a power plant at the cost of $50 million. Once the plant is built, it would cost the plant $0.07 per kilowatt hour of electricity that it produces. Over its lifetime, the plant is expected to generate 100 million kilowatt hours. Suppose that the regulators believe that the investors who put up capital to build the plant should be able to recoup its investment plus a 300% return throughout the life of the...
Auto X firm spent $300 million in total to produce 40 000 cars this year. The...
Auto X firm spent $300 million in total to produce 40 000 cars this year. The breaks down of $300 milion as follows: The company spent $50 million on fixed costs to run its manufacturing plants and $5000 of variable costs to produce each car. Next year assuming that, fixed costs and variable costs will increase 10%. It plans 50 000 cars. a-What is the current average cost per car this year? b- What is the total forcasted cost to...
A new manufacturing plant costs $5,150,000 to build. Operating and maintenance costs are estimated to be...
A new manufacturing plant costs $5,150,000 to build. Operating and maintenance costs are estimated to be $43,000 per year, and a salvage value of 25% of the initial cost is expected. The units the plant produces are sold for $35 each. Sales and production are designed to run 365 days per year. The planning horizon is 10 years. Find the break-even value for the number of units sold per day for each of the following values of MARR: A/ 5%...
A proposal to build a $187 million factory is being contemplated to produce a new product....
A proposal to build a $187 million factory is being contemplated to produce a new product. The factory is expected to last 20 years (but can be depreciated immediately according to current accounting rules). The factory is expected to produce 8000 units per year that are expected to be sold for a price of $26,000 each. Variable costs (production labor, raw materials, marketing, distribtuion, etc.) are expected to be $17,000 per unit. Fixed costs (administration, maintenance, repairs, utliities, insurance, real...
A proposal to build a $187 million factory is being contemplated to produce a new product....
A proposal to build a $187 million factory is being contemplated to produce a new product. The factory is expected to last 20 years (but can be depreciated immediately according to current accounting rules). The factory is expected to produce 8000 units per year that are expected to be sold for a price of $26,000 each. Variable costs (production labor, raw materials, marketing, distribtuion, etc.) are expected to be $17,000 per unit. Fixed costs (administration, maintenance, repairs, utliities, insurance, real...
Beats wants to build a new factory to produce its headphones. It will cost $230 million...
Beats wants to build a new factory to produce its headphones. It will cost $230 million initially to build the factory over the course of 12 months, which will be worthless after 10 years. The factory will be depreciated linearly to $0 over 10 years. Beats already owns the land on which the factory will be built. The land is currently worth $10 million and was purchased for $2 million eight years ago. After completion of the factory at the...
You are considering opening a new plant. The plant will cost $101.8 million up front and will take one year to build.
You are considering opening a new plant. The plant will cost $101.8 million up front and will take one year to build. After that it is expected to produce profits of $30.9 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 7.8%.Should you make the investment? Calculate the IRR and use it to determine the maximum deviation allowable in...
You are considering opening a new plant. The plant will cost $99.5 million up front and will take one year to build.
Please show all work and how to input it into a fin calculator You are considering opening a new plant. The plant will cost $99.5 million up front and will take one year to build. After that it is expected to produce profits of$28.9 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 8.2%. Should you make the​ investment?...
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...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT