You are considering building a fleet of drones to deliver goods

Finance Nov 03, 2020

You are considering building a fleet of drones to deliver goods. The drones are expected to cost $125 million today and take a 3 years to make. After that, it is expected to make $55 million in the first year it is released and $35 million for the following 8 years. a. What is the payback period of this investment? b. If the pay back(specified period) period is 7 years, will you accept the project? c. If the cost of capital is 12% calculate the NPV of this project.

Expert Solution

1.
=4+(125-55)/35
=6.00000

2.
Yes as payback is less than the specified period

3.
=-125+55/1.12^4+35/1.12^5*(1-1/1.12^8)/(1-1/1.2)
=-19.01345 million

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