Question

An auto plant that costs $110 million to build can produce a line of flexfuel cars that will produce cash flows with a present value of $150 million if the line is successful but only $60 million if it is unsuccessful. You believe that the probability of success is only about 40%. You 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? Yes No

Suppose that the plant can be sold for $105 million to another automaker if the auto line is not successful. 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 1 decimal place)

b-2. Would you build the plant? Yes No

Answer 1