2.) Mutually exclusive projects may be ranked differently when higher or lower discount rates are used.

a. True

b. False

13.) The option to abandon a project before the end of its forecasted life may increase its NPV.

a. True

b. False

18.) Porter Climate Control is evaluating a proposal to move some manufacturing operations from an obsolescent plant in Illinois to a new facility in Mexico. The new facility will cost $58 million to open. and is expected to result in savings of $16 million per year for the first five years. At the end of 5 years, Porter will decide either to close the plant in Mexico or to keep it indefinitely. If Porter closes the plant, the building and equipment can be sold for $20,000,000. If the plant is kept, assume that the $16 million turns into a perpetuity. There is a 30% chance the plant will be closed and a 70% chance it will be kept. Compute the expected NPV of the project. Use a discount rate of 12%.

a. $75.32 million

b. ($30.32 million)

c. $56.04 million

d. $114.04 million