Allen Technology Company is currently valued at $400 million. It is proposing a new plant with a net present value of $200 million. However, the new plant will reduce the value of one of its existing plants by $50 million. What is the value of the company if it invests in the new plant?
A)$600 million
B)$200 million
C)$550 million
D)$650 million

Question

Quizplus · Accepted Answer

The new plant has a net present value of $200 million, but it reduces the value of an existing plant by $50 million. Therefore, the net addition to the company's value is $150 million ($200 million - $50 million). 
Adding this to the current value of the company ($400 million) gives a total value of $550 million. Therefore, the best choice is C.

Allen Technology Company Is Currently Valued at $400 Million