General Motors has a weighted average cost of capital of 9%.GM is considering investing in a new plant that will save the company $25 million over each of the first two years,and then $10 million each year thereafter.If the investment is $100 million,what is the net present value (NPV)of the project?

Question

Quizplus · Accepted Answer

The NPV is calculated by discounting the future cash flows at the WACC of 9% and subtracting the initial investment. The cash flows are $25 million for the first two years and $10 million thereafter. The NPV calculation results in approximately $37.5 million.

General Motors Has a Weighted Average Cost of Capital of 9%.GM