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March 29, 2017

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You are considering opening a new plant. The plant will cost $100 million upfront. After that, it is expected to produce profits of $30 million at the end of every year. The cash flows are expected to last forever. Calculate the NPV of this investment opportunity if your cost of capital is 8%. Should you make the investment? Calculate the IRR and use it to determine the maximum deviation allowable in the cost of capital estimate to leave the decision unchanged.

  • Finance - ,

    npv=(1/1+r)*(c/r)-c0

    1/1,08*30/0.08-100

    answer: 247.22

  • Finance - ,

    npv=(1/1+r)*(c/r)-c0

    1/1,08*30/0.08-100

    answer: 247.22

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