Marcal Corporation is considering a project would cost $5.5 million today and generate positive cash flows of $3 million a year at the end of each of the next 4 years. The project's cost of capital is 11%.
a. Calculate the project's NPV if the company proceeds now..
b. The company is fairly confident about its cash flow forecast, but expects to have better price information in 2 years. The company believes the cost would be $6.5 million in 2 years. It estimates there is a 70% change CFs will be $4.5 million for 4 years and a 30% change CFs will be $2 million for 4 years. Should the company proceed with the project now or wait 2 years until it has better information?
c. Apart from the calculationsabove,discuss3 qualitative factors that the company should considerwhenmaking its decision on accepting the new project.
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