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An auto plant that costs $180 million to build can produce a
line of flexfuel cars that will produce cash flows with a present
value of $220 million if the line is successful but only $110
million if it is unsuccessful. You believe that the probability of
success is only about 50%. You learn whether the line is successful
immediately after building the plant.

a-1.
Calculate the expected NPV. (Negative amount should be
indicated by a minus sign. Enter your answer in millions.)
a-2.
Would you build the plant?
b-1.
Calculate the expected NPV. (Negative amount should be indicated by
a minus sign. Enter your answer in millions rounded to 1 decimal
place
b-2.
Would you build the plant?
 
 

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