Company X has a plant producing mountain bikes. The plant’s current operations are estimated to generate a £10m cash flow per year(in perpetuity). The company is considering the option to halt the production of mountain bikes and invest £100m to reconvert the plant to produce electric bikes. This is estimated to increase total company cash flows from £10m to £20m per year in perpetuity. Assuming a 10% discount rate, the NPV of this project is A. £110m B. £0 C. £200m D. £10m
Company X has a plant producing mountain bikes. The plant’s current operations are estimated to generate a £10m cash flow per year(in perpetuity). The company is considering the option to halt the production of mountain bikes and invest £100m to reconvert the plant to produce electric bikes. This is estimated to increase total company cash flows from £10m to £20m per year in perpetuity. Assuming a 10% discount rate, the NPV of this project is A. £110m B. £0 C. £200m D. £10m
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Company X has a plant producing mountain bikes. The plant’s current operations are estimated to generate a £10m cash flow per year(in perpetuity). The company is considering the option to halt the production of mountain bikes and invest £100m to reconvert the plant to produce electric bikes. This is estimated to increase total company cash flows from £10m to £20m per year in perpetuity. Assuming a 10% discount rate, the NPV of this project is
A. £110m
B. £0
C. £200m
D. £10m
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