You are considering opening a new plant. The plant will cost $ 104.4 million upfront and will take one year to build. After that, it is expected to produce profits of $ 28.6 million at the end of every year of production. The cash flows are expected to last forever. Calculate the NPV of this investment opportunity if your cost of capital is 7.7 %. Should you make the investment? Calculate the IRR. Does the IRR rule agree with the NPV rule?
Please refer to below spreadsheet for calculation and answer. Cell reference also provided.
Cell reference -
please note-
NPV Rule: Accept project when NPV is positive
IRR Rule: Accept project when IRR is greater than cost of capital
Hope this will help, please do comment if you need any further explanation. Your feedback would be highly appreciated.
You are considering opening a new plant. The plant will cost $ 104.4 million upfront and...
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