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problem: The plant will cost dollar 100 million upfront and will take one year to build. After that, it is expected to produce profits of dollar 30 million at the end of every year of production. The cash flows are expected to last forever. Compute the NPV of this investment opportunity if your cost of capital is 8 percent. Should you make the investment? Compute the IRR & use it to estimate the maximum deviation allowable in the cost of capital estimate to leave the decision unchanged. Does the IRR rule agree with the NPV rule?

Basic Finance, Finance

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