Build can produce line of flexfuel cars

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An auto plant that costs $200 million to build can produce a line of flexfuel cars that will produce cash flows with a present value of $280 million if the line is successful but only $90 million if it is unsuccessful. You believe that the probability of success is only about 40%. You will learn whether the line is successful immediately after building the plant.

a-1. Calculate the expected NPV.

a-2. Would you build the plant?

Suppose that the plant can be sold for $150 million to another automaker if the auto line is not successful.

b-1. Calculate the expected NPV

b-2 Would you build the plant?

Reference no: EM131973592

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