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An automobile manufacturer is converting an assembly line from standard vehicles to hybrid vehicle production. Conversion will cost $100 million. Production capacity will be 4000 vehicles in the first year and will increase by 1000 vehicles per year for all future years. Each hybrid earns a net profit of $5,000.

a. If the interest rate is 15%, how many years will it take until the present worth of the net benefits equals the $100 million initial cost? Report your answer to 2 decimal places.

b. Using the simple payback method, how many years will it take the $100 million investment to pay back? Report your answer to 2 decimal places.

c. Based on your answers to parts a. and b. would you recommend this investment? Why or why not?

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Financial Management, Finance

Category:- Financial Management
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