Question

An auto plant that costs $100 million to build can produce a line of flexfuel cars that will produce cash flows with a present value of $140 million if the line is successful but only $50 million if it is unsuccessful. You believe that the probability of success is only about 50%. You will learn whether the line is successful immediately after building the plant.

Would you build the plant?

Answer 1

No, I will not build the plant as the NPV is negative

Step-by-step explanation:

The decision will be based on the Net present value of the project. Positive NPV will lead to building the plant and Negative NPV lead to the refusal of the project.

Initial Investment = $100 million

Cash Flows

Successful = $140

Unsuccessful = $140

Working for the NPV is attached with answer, please find it.