A company is deciding whether to invest in a new manufacturing plant. The initial investment required for
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A company is deciding whether to invest in a new manufacturing plant. The initial investment required for the plant is $5 million, and the expected cash flows for the next five years are as follows: $1 million in year 1, $1.5 million in year 2, $2 million in year 3, $3 million in year 4, and $4 million in year 5. The discount rate for the project is 8%. The company also estimates that there is a 30% chance of a recession in the next five years, which would reduce the expected cash flows by 20% in each year. Should the company invest in the new manufacturing plant? Show all calculations and explain your decision.
Related Book For
Fundamentals of Financial Management
ISBN: 978-1337395250
15th edition
Authors: Eugene F. Brigham, Joel F. Houston
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