Expect an annual rate of return

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You are the manager of General-Ford, a large North American automobile manufacturer. Demand for your product has been high and you are looking at the following three alternative plans:

Plan I:Spend $40 million today on a factory in Alabama that will be completed in 1 year. You expect to receive $24.2 million in profits from this factory at the end of the second year, at which time you also expect to sell the factory to Toyhonda, a Japanese competitor, for a further $24.2 million.

Plan II:Spend $100 million today in a joint venture with Nisubishi. You expect to begin generating yearly profits of $11 million at the end of the first year and every year thereafter. You expect the joint venture to last forever.

Plan III:Spend $100 million today to buy stock in Google on which you expect an annual rate of return of 12%, which you expect will continue forever.

The market interest rate is 10%. (Assume the inflation rate is constant at 0, and is expected to remain so for the duration of the above investments.)

Reference no: EM132524891

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