1: Mars Technologies is considering setting up a plant in a foreign country. The plant will have an estimated useful life of 4 years and the estimated costs of setting it up are $20 million. The company’s CFO has estimated the following cash flows associated with the new plant: Year 1 = $5.8 million Year 2 = $7.9 million Year 3 = $8.6 million Year 4 = $10.5 million The company is concerned about its current exports to the foreign country, which are expected to be reduced by $1,200,000 for each of the 4 years. Given that the company’s required rate of return is 12%, what is the NPV of the project? Q#2: Jupiter Inc.’s directors are considering expanding their operations in foreign markets. They estimate that the cost of expansion is approximately $42 million. The company’s CFO has estimated that new foreign operations will generate the following cash flows: Year 1 = $2,120,000 Year 2 = $2,838,000 Year 3 = $3,480,000 Year 4 = $4,570,000 Year 5 onward, the cash flow stream is going to stabilize at $5,500,000 which is going to continue forever. Given that the company’s required rate of return is 11%, what is the NPV of the project?
1: Mars Technologies is considering setting up a plant in a foreign country. The plant will have an
estimated useful life of 4 years and the estimated costs of setting it up are $20 million. The company’s
CFO has estimated the following cash flows associated with the new plant:
Year 1 = $5.8 million
Year 2 = $7.9 million
Year 3 = $8.6 million
Year 4 = $10.5 million
The company is concerned about its current exports to the foreign country, which are expected to be
reduced by $1,200,000 for each of the 4 years. Given that the company’s required
what is the NPV of the project?
Q#2: Jupiter Inc.’s directors are considering expanding their operations in foreign markets. They
estimate that the cost of expansion is approximately $42 million. The company’s CFO has estimated that
new foreign operations will generate the following cash flows:
Year 1 = $2,120,000
Year 2 = $2,838,000
Year 3 = $3,480,000
Year 4 = $4,570,000
Year 5 onward, the cash flow stream is going to stabilize at $5,500,000 which is going to continue
forever. Given that the company’s required rate of return is 11%, what is the NPV of the project?
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