Government newfound enthusiasm for product

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DND manufactures disinfectant. It is thinking of establishing a factory in the US due to the government's newfound enthusiasm for the product. But, you are concerned the government might seize your facilities under the Defense Production Act of 1950 (DPA). You expect demand will only remain in place for two years. So, you intend to close the facilities in two years time.

The cash flows for the first year are 10.5 if DND survives and 7.1 if the DPA is invoked. They are 12.3 if DND survives and 2.1 if it the DPA is invoked. The company shuts down thereafter; there are no further cash flows. You think there is 48.3% chance of the act being invoked in year 1 and 7.3% chance of it being invoked in year 2. The discount rate is 6.4% p.a.

What is the project's NPV?

Reference no: EM132509167

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