Problem: You are considering opening a new plant. The plant will cost $100 million upfront and will take one year to build. After that, it is expected to produce profits of $30 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 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.

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You are considering opening a new plant. The plant will cost $100 million upfront and will take one year to build. After that, it is expected to produce profits of $ 30 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 8%. Should you make the investment? Calculate the IRR and use it to determine the maximum deviation ...

Solution Summary

In about 330 words, including the required equation, this solution is comprised of a detailed explanation to calculate the NPV and IRR for a new $100 million plant. Then an interpretation of the results obtained is provided to make a comment on whether the investment opportunity is advantageous.

1. A financial manager evaluating a new investment opportunity should assess:
only the cash requirements of the project.
the risks and returns of theinvestment without regard to other investments.
how the project compares with the average project of the firm.
the resources that the opportunity will consume.

A firm's current investment opportunity schedule and the weighted marginal cost of capital schedule are shown below:
Investment Opportunity IRR Initial Investment
Schedule
A 15% $200,000
B

What is an opportunity cost rate, is it used in the discounted cash flow analysis, should I show it on my time line and where, and finally is this thing a single number or does it change and if so why?

1)
Calculate the future value of $2000 in
a) 5 years at interest rate of 5% per year
b) 10 years at an interest rate of 5% per year
c) 5 years at an interest rate of 10% per year
d) why is the amount of interest earned in part (a) less than half the amount of interest earned in (b)
2)
You are thinking of retiring. Your

You are deciding between two mutually exclusive investment opportunities. Both require the same initial investment of $10 million. Investment A will generate $2 million per year (starting at the end of the first year) in perpetuity. Investment B will generate $1.5 million at the end of the first year and its revenues will grow

The following information is available about an investment opportunity. Investment will occur at time 0 and sales will commence at time 1.
Initial cost $10 million
Unit sales 100,000
Selling price per unit, this year $50
Variable cost per unit, this year $20
L

Magnificent Modems, Inc. (MMI), has several capital investment opportunities. The term, expected annual cash inflows, and the cost of each opportunity are outlined in the following table. MMI has established the desired rate of return of 16 percent for these investment opportunities.
Opportunity A B

A company has six different opportunities to invest money. Each opportunity requires a certain investment over a period of 6 years or less. The company wants to invest in those opportunities that maximize the combined Net Present Value. It also has an investment budget that needs to be met for each year. We assume that it is po

You have the opportunity to make an investment of $900,000. If you make this investment, you make $12,000, $250,000 and $800,000 one, two and three years from today, respectively. The discount rate is 12%
a) Shouldyou make this investment?
b) What is the NPV (net present value) of this opportunity?
c) If the discount rat

Please help answer the following question. Provide at least 200 words in the solution. Provide step by step calculations in the answer.
1. Why would the cost of capital be considered an opportunity cost?
2. Why is the cost of capital measured on an after-tax basis? Would this affect any specific cost components?