An auto plant that costs $180 million to build can produce a line of flexfuel cars that will produce cash flows with a present value of $220 million if the line is successful but only $110 million if it is unsuccessful. You believe that the probability of success is only about 50%. You learn whether the line is successful immediately after building the plant.
a-1.
Calculate the expected NPV. (Negative amount should be indicated by a minus sign. Enter your answer in millions.)
a-2.
Would you build the plant?
Suppose that the plant can be sold for $175 million to another automaker if the auto line is not successful.
b-1.
Calculate the expected NPV. (Negative amount should be indicated by a minus sign. Enter your answer in millions rounded to 1 decimal place.)
b-2.
Would you build the plant?
Autoplant
