scale differencesA company is considering two mutually exclusive expan

QUESTION

scale differencesA company is considering two mutually exclusive expansion plans. Plan A requires a $39 million expenditure on a large-scale integrated plant that would provide expected cash flows of $6.23 million per year for 20 years. Plan B requires a $13 million expenditure to build a somewhat
Answer : Plan A :expected cash flows of $6.4 million per year for 5 years WACC = 12% Hence , NPV = 6.4/1.12 + 6.4/(1.12)^2 + 6.4/(1.12)^4 + 6.4/(1.12)^4 + 6.4/(1.12)^5 = $14,486.808 Plan B : expected cash flows of

$3.4 million per year for 5 years WACC = 12% Hence , NPV = 3.4/1.12 + 3.4/(1.12)^2 + 3.4/(1.12)^4 + 3.4/(1.12)^4 + 3.4/(1.12)^5 = $11,156.893

ANSWER:

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