An auto plant that costs $120 million to build can produce a line of flexfuel cars that will produce cash flows with a present value of $180 million if the line is successful but only $50 million if it is unsuccessful. You believe that the probability of success is only about 45%. You will learn whether the line is successful immediately after building the plant.
a-1. Calculate the expected NPV. (Do not round intermediate calculations. A negative amount should be indicated by a minus sign. Enter your answer in millions.)
a-2. Would you build the plant?
Yes
No
Suppose that the plant can be sold for $110 million to another automaker if the auto line is not successful.
b-1. Calculate the expected NPV. (Do not round intermediate calculations. A 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?
Yes
No