Otis, makers of elevators, is considering a new plant that will cost $100 million upfront and take one year to build. After that it is expected to generate profits of $30 million at the end of every year of production. The cash flows are expected to last for ever. (i)What is the NPV of this investment opportunity if the cost of capital is 8% (ii). Should Otis make the investment? (iii). What is the IRR of this investment? (iv). Given the IRR you found, what is the maximum error allowable in estimating the cost of capital to leave the decision unchanged if the cash flows are the same?

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i What is the NPV of this investment opportunity if the cost of capital is 8 The NPV of an investmen... View the full answer