SYDNEY Account Help board ProctorU Help centre SONY is considering to set up a plant in...

 

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SYDNEY Account Help board ProctorU Help centre SONY is considering to set up a plant in the city of Shenchen to produce its Smart LED TV in China You are given the following facts about the investment Initial investment -CNY700.000.000; rises by 5% each year Price per unit P-CNY11.000 per TV or P-CNY5.000 per TV with equal probability and remains unchanged thereafter Cost per unit C₁-CNY5,000 and remains unchanged thereafter Production 80,000 units of TV per year forever i-20% Discount rate Suppose this investment is one of five plants with identical characteristics that could be built in China. The outcome from your initial investment will provide information about the price of TV that SONY can charge from Chinese customers. a) Please calculate the net present value (at 1-0) of investing today in all the five plants as if it were a now-or-never alternative. (3 Marks) b) Please calculate the net present value (at t-0) of investing in one plant today and then waiting one year before making a decision on the other four plants. (8 Marks) c) Calculate the opportunity cost of investing in all five plants today. (2 Marks) Edit View Insert Format Tools Table SYDNEY Account Help board ProctorU Help centre SONY is considering to set up a plant in the city of Shenchen to produce its Smart LED TV in China You are given the following facts about the investment Initial investment -CNY700.000.000; rises by 5% each year Price per unit P-CNY11.000 per TV or P-CNY5.000 per TV with equal probability and remains unchanged thereafter Cost per unit C₁-CNY5,000 and remains unchanged thereafter Production 80,000 units of TV per year forever i-20% Discount rate Suppose this investment is one of five plants with identical characteristics that could be built in China. The outcome from your initial investment will provide information about the price of TV that SONY can charge from Chinese customers. a) Please calculate the net present value (at 1-0) of investing today in all the five plants as if it were a now-or-never alternative. (3 Marks) b) Please calculate the net present value (at t-0) of investing in one plant today and then waiting one year before making a decision on the other four plants. (8 Marks) c) Calculate the opportunity cost of investing in all five plants today. (2 Marks) Edit View Insert Format Tools Table

Answer rating: 100% (QA)

a Calculating the net present value NPV at t0 for investing in all five plants as if it were a nowornever alternative involves determining the present ... View the full answer