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This posting addresses investment NPV and IRR calculations.

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You are considering opening a new plant. The plant will cost $100 million upfront. After that it is expected tp produce profits of $30 million at the end of every year. 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 capitol estimate to leave the decision unchanged.

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Solution Summary

The solution provides the calculations needed to determine NPV and IRR for the new plant with a cost of $100 million upfront, profits of $30 million and a cost of capital of 8%.