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Assume you have completed a capital budgeting analysis of building a new plant on land you...

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Finance

Assume you have completed a capital budgeting analysis ofbuilding a new plant on land you own, and the project's NPV is $100million. You now realize that instead of building the plant, youcould build a parking garage, and would generate a pre tax revenueof $15 million. The project would last 3 years, the corporate taxrate is 40%, and the WACC is 7%. What is the new NPV of theproject, after incorporating the effect of the opportunitycost?

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3.6 Ratings (418 Votes)
Projects current NPV 100 million Instead of building plant if one builds garage then pre tax revenue generated by garage 15 million Opportunity cost represents revenue forgone as a    See Answer
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Transcribed Image Text

Assume you have completed a capital budgeting analysis ofbuilding a new plant on land you own, and the project's NPV is $100million. You now realize that instead of building the plant, youcould build a parking garage, and would generate a pre tax revenueof $15 million. The project would last 3 years, the corporate taxrate is 40%, and the WACC is 7%. What is the new NPV of theproject, after incorporating the effect of the opportunitycost?

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