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Homework answers / question archive / A manufacturing company based in a developing country is considering opening a new plant
A manufacturing company based in a developing country is considering opening a new plant.
The investment required to build the factory and buy the equipment is $5 million.
The firm estimates that the operating activities conducted in the new plant will generate a profit of
$100,000 in each of the next four years.
At the end of the fourth year, the plant will be sold to a multinational company for $7.5 million.
The project is estimated to have the same level of risk as an investment in the local stock market, which
offers an expected annual rate of return of 15%.
Calculate present value.
Would you advise the company to undertake the project? Explain.
