Problem 5-8 (Algo)3Expando, Inc., is considering the possibility of building an additional factory that would produce a new addition to its product line. Thecompany is currently considering two options. The first is a small facility that it could build at a cost of $8 million. If demand for newproducts is low, the company expects to receive $9 million in discounted revenues (present value of future revenues) with the smallfacility. On the other hand, if demand is high, it expects $11 million in discounted revenues using the small facility. The second option isto build a large factory at a cost of $10 million. Were demand to be low, the company would expect $11 million in discounted revenueswith the large plant. If demand is high, the company estimates that the discounted revenues would be $15 million. In either case, theprobability of demand being high is 0.40, and the probability of it being low is 0.60. Not constructing a new factory would result in noadditional revenue being generated because the current factories cannot produce these new products.a. Calculate the NPV for the following: (Leave no cells blank - be certain to enter "0" wherever required. Enter your answers inmillions rounded to 1 decimal place.)PlansSmall facility $Do nothingLarge facilityNPV69 690.7$ 0millionmillion2.5 millionb. The best decision to help Expando isto build the small facility.to do nothing.to build the large facility.

NPV is the net present value is the difference between the present value of cash flow and initial…

Expando, Inc., is considering the possibility of building an additional factory that would produce a new addition to company is currently considering two options. The first is a small facility that it could build at a cost of $8 million. I products is low, the company expects to receive $9 million in discounted revenues (present value of future reven facility. On the other hand, if demand is high, it expects $11 million in discounted revenues using the small facility. to build a large factory at a cost of $10 million. Were demand to be low, the company would expect $11 million in with the large plant. If demand is high, the company estimates that the discounted revenues would be $15 million probability of demand being high is 0.40, and the probability of it being low is 0.60. Not constructing a new factor additional revenue being generated because the current factories cannot produce these new products. a. Calculate the NPV for the following: (Leave no cells blank - be certain to enter "0" wherever required. Enter y millions rounded to 1 decimal place.) Plans Small facility Do nothing NPV $ 0.7 million $ 0 million

Expando, Inc., is considering the possibility of building an additional factory that would produce a new addition to company is currently considering two options. The first is a small facility that it could build at a cost of $8 million. I products is low, the company expects to receive $9 million in discounted revenues (present value of future reven facility. On the other hand, if demand is high, it expects $11 million in discounted revenues using the small facility. to build a large factory at a cost of $10 million. Were demand to be low, the company would expect $11 million in with the large plant. If demand is high, the company estimates that the discounted revenues would be $15 million probability of demand being high is 0.40, and the probability of it being low is 0.60. Not constructing a new factor additional revenue being generated because the current factories cannot produce these new products. a. Calculate the NPV for the following: (Leave no cells blank - be certain to enter "0" wherever required. Enter y millions rounded to 1 decimal place.) Plans Small facility Do nothing NPV $ 0.7 million $ 0 million

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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Assuming PepsiCola, Atlanta is considering of giving its main rival a strong competition, in the launch of a product (two-in-one beverage) for a new market. The company requires an amount of $15,000,000.00 as the initial cost of plant/equipment for the products developed by its R&D research group to cover the project life cycle of eight years. For each year, 500,000 units would be produced. The selling price of a unit of the new product is $8.50. It is expected that in year two (2), the selling price of a unit will increase by 25%; year three (3) the unit will be selling by a further increase by 10% from year two (2)s selling price. From year four (4), the selling price will decrease by 5% from year three (3)s selling price and the subsequent years will stabilize or remain till the end of the project life and further. The production department estimated cost of each unit for 1st year as $2.75, it will increase in 2nd year by 25%; In the 3rd year, will increase by 10% from the…
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