An auto plant that costs $200 million to build can produce a line of flexfuel cars that will produce cash flows with a present value of $280 million if the line is successful but only $90 million if it is unsuccessful. You believe that the probability of success is only about 40%. You will learn whether the line is successful immediately after building the plant.
a-1. Calculate the expected NPV.
a-2. Would you build the plant?
Suppose that the plant can be sold for $150 million to another automaker if the auto line is not successful.
b-1. Calculate the expected NPV
b-2 Would you build the plant?