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Tropical Soft Drinks is evaluating a proposal to install solar panels on the roof of it's factory near San Juan. The panels will cost $150,000 per set. Depending on the price of electricity and the efficiency of the panels, the project will increase operating cash flows by either $50,000 per year or $75,000 per year. The useful life of the panels is 5 years. If early results indicate savings of $75,000 per year, four additional sets of panels will be installed immediately at the same cost with the same projected savings. The probability of either outcome is 50%. Use a discount rate of 10%.

What is the expected NPV of the project if the option to expand is considered.

a. $355,542

b. $236,924

c. $711,084

Basic Finance, Finance

  • Category:- Basic Finance
  • Reference No.:- M943324

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