Question

Asked Jun 8, 2019

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An auto plant that costs $100 million to build can produce a line of flexfuel cars that will produce cash flows with a present value of $140 million if the line is successful but only $50 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 answer in millions.)

a-2.Would you build the plant?

Suppose that the plant can be sold for $95 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 1 decimal place.)

b-2. Would you build the plant?

Step 1

a)-1

**Calculation of expected NPV:**

Step 2

a)-2

Since the net present value is negative it is not advisable to build the plant.

Step 3

b)-1)

**Calculation of expected ...**

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