Question

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-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 $150 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?

Answer 1

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