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.
1. Calculate the NPV of this investment opportunity if your cost of
capital is 8%. Should you make the investment?
2. Calculate the IRR and use it to determine the maximum deviation
allowable in the cost of capital estimate to leave the decision
unchanged.

1. $275 million

Yes

2. 30%

Explanation:

Calculation for the NPV of the investment opportunity

NPV = –100 + 30/0.08

NPV= $275 million

Therefore the NPV will be $275 million

Yes, Based on the above Calculation they should make the investment

2. Calculation for IRR

IRR: 0 = –100 + 30/IRR

Hence,

IRR = 30/100

IRR = 30%

Therefore the IRR will be 30%

The IRR is great only in a situation where the cost of capital does not go beyond 30%.

wheres the chart? so i can answer.

disadvantages of leasing a vehicle: no vehicle equity and mileage limitations

disadvantages of purchasing a vehicle: large down payment and vehicle depreciation

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