An auto plant that costs $220 million
Question
An auto plant that costs $220 million to build can produce a line of flexfuel cars that will produce cash flows
with a present value of $280 million if the line is successful but only $150 million if it is unsuccessful. You believe that the probability of success is only about 52%. 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 answer in millions rounded to 1 decimal place.) |
| Expected NPV | $ million |
| a-2. | Would you build the plant? |
| YesNo |
| Suppose that the plant can be sold for $190 million to another automaker if the auto line is not successful. |
| b-1. | Calculate the expected NPV. (Do not round intermediate calculations. A negative amount should be indicated by a minus sign. Enter your answer in millions rounded to 2 decimal places.) |
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