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Porter Climate Control is evaluating a proposal to move some manufacturing operations from an ...

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Porter Climate Control is evaluating a proposal to move some manufacturing operations from an ...

Porter Climate Control is evaluating a proposal to move some manufacturing operations from an obsolescent plant in Illinois to a new facility in Mexico. The new facility will cost $58 million to open. and is expected to result in savings of $16 million per year for the first five years. At the end of 5 years, Porter will decide either to close the plant in Mexico or to keep it indefinitely. If Porter closes the plant, the building and equipment can be sold for $20,000,000. If the plant is kept, assume that the $16 million turns into a perpetuity. There is a 30% chance the plant will be closed and a 70% chance it will be kept. Compute the expected NPV of the project. Use a discount rate of 12%.
A) $75.32 million
B) ($30.32 million)
C) $56.04 million
D) $114.04 million

Textbook

Financial Management: Principles and Applications

Edition: 13^th

Authors: Titman, Keown, Martin

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