Solar Co. is evaluating a proposal to build a new solar plant. The new plant costs $225
Question:
Solar Co. is evaluating a proposal to build a new solar plant. The new plant costs $225 million today (at t = 0), and the expected salvage value of the plant in eight years is $50 million (at t = 8). Based on these assumptions, the NPV of this project is $20 million. Now suppose the project team made an error, and the expected salvage value of the plant iszeroin eight years (at t = 8). By how much would the NPV of the project change, assuming thesalvage value is zero? The CCA rate for the solar plant is 40%. Solar Co. has a corporate tax rate of 38% and a required rate of return of 15%.
a)$11.89 million
b)The NPV would not change.
c)$1.80 million
d)$4.52 million
e)$13.82 million
Fundamentals Of Corporate Finance
ISBN: 9781265553609
13th Edition
Authors: Stephen Ross, Randolph Westerfield, Bradford Jordan