The Pinkerton Publishing Company is considering two mutually exclusive expansion plans. Plan A calls for the expenditure of $50 million on a large-scale, integrated plant that will provide an expected cash flow stream of $8 million per year for 20 years. Plan B call for the expenditure of $15 million to build a somewhat less efficient, more labor-intensive plant that has an expected cash flow stream of $3.4 million per year for 20 years. The firm's cost of capital is 10%.
a.) Calculate each project's NPV and IRR.
c.) Graph the NPV profiles for Plan A, Plan B
The solution explains how to calculate the NPV and IRR of projects and how to prepare a NPV profile