Reliable Industries is considering the construction of a power plant investment in India. Reliable’s analysts calculate that the cost of building the plant is $ 600 million, and the internal rate of return (IRR) of the plant is 13%. The analysts also estimate that, given the experience of building the first plant, a second plant can be built for $ 550 million, and additional plants can be built for about $ 500 million each. The cost of capital is 16%.
a. How would you evaluate whether or not to build this power plant in India?
b. Are you evaluating a project or a strategy?
c. How does the risk associated with the power plant strategy compare with the risk associated with the individual power plants?

  • CreatedNovember 13, 2015
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