An auto plant that costs $140 million to build can produce a line of flex-fuel cars that will produce cash flows with a present value of $190 million if the line is successful but only $70 million if it is unsuccessful. You believe that the probability of success is only about 30%. You will learn whether the line is successful immediately after building the plant. a-1. Calculate the expected NPV. Note: Do not round intermediate calculations. A negative amount should be indicated by a minus sign. Enter your answers in millions rounded to 1 decimal place. a-2. Would you build the plant? Suppose that the plant can be sold for $120 million to another automaker if the auto line is not successful. b-1. Calculate the expected NPV. Note: Do not round intermediate calculations. A negative amount should be indicated by a minus sign. Enter your answers in millions rounded to 1 decimal place. b-2. Would you build the plant? a-1. Expected NPV a-2. Would you build the plant? b-1. Expected NPV b-2. Would you build the plant? million million

An auto plant that costs $140 million to build can produce a line of flex-fuel cars that will produce cash flows with a present value of $190 million if the line is successful but only $70 million if it is unsuccessful. You believe that the probability of success is only about 30%. You will learn whether the line is successful immediately after building the plant. a-1. Calculate the expected NPV. Note: Do not round intermediate calculations. A negative amount should be indicated by a minus sign. Enter your answers in millions rounded to 1 decimal place. a-2. Would you build the plant? Suppose that the plant can be sold for $120 million to another automaker if the auto line is not successful. b-1. Calculate the expected NPV. Note: Do not round intermediate calculations. A negative amount should be indicated by a minus sign. Enter your answers in millions rounded to 1 decimal place. b-2. Would you build the plant? a-1. Expected NPV a-2. Would you build the plant? b-1. Expected NPV b-2. Would you build the plant? million million

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EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter11: Capital Budgeting And Risk

Section: Chapter Questions

Problem 12P

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An auto plant that costs $170 million to build can produce a line of flexfuel cars that will produce cash flows with a present value of $240 million if the line is successful but only $80 million if it is unsuccessful. You believe that the probability of success is only about 50%. You will learn whether the line is successful immediately after building the plant. a-1. Calculate the expected NPV. (Do not round intermediate calculations. A negative amount should be indicated by a minus sign. Enter your answers in millions rounded to 1 decimal place.) a-2. Would you build the plant? Suppose that the plant can be sold for $140 million to another automaker if the auto line is not successful. (Do not round intermediate calculations. A negative amount should be indicated by a minus sign. Enter your answers in millions rounded to 1 decimal place.) b-1. Calculate the expected NPV. b-2. Would you build the plant?
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An auto plant that costs $170 million to build can produce a line of flexfuel cars that will produce cash flows with a present value of $230 million if the line is successful but only $100 million if it is unsuccessful. You believe that the probability of success is only about 50%. You will learn whether the line is successful immediately after building the plant. a. Calculate the NPV. Suppose the plant can be sold for $150 million to another automaker if the auto line is not successful. b. Calculate the NPV.
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