Determine expected net present value of building the plant

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An auto plant that costs $50 million to build can produce a new line of cars that will produce net cash flow of $45 million per year if the line is successful, but only $1 million per year if it is unsuccessful. You believe that the probability of success is about 55 percent. The auto plant is expected to have a life of 18 years and the opportunity cost of capital is 9 percent.

If the plant could be sold for $105 million to another automaker in one year if the auto line is not successful, what is the expected net present value of building the plant?

Reference no: EM132487861

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