New Flyer Industries has decided to expand its production of hybrid transit buses.The firm expects incremental cash flows of $40 million per year for the next 10 years.The upfront cost of the expansion is $150 million,and there are additional issuance costs for external financing of $15 million.If the New Flyer's WACC is 7.5%,what is the NPV of the project?
A)$235 million
B)$125 million
C)$110 million
D)$95 million
E)$219 million

Question

Quizplus · Accepted Answer

1. Calculate the present value of the incremental cash flows:
PV = $40 million * ((1-1/(1+0.075)^10)/0.075) = $279.97 million
2. Calculate the present value of the upfront cost and issuance costs:
PV = -$150 million - $15 million = -$165 million
3. Calculate the NPV:
NPV = PV of cash inflows - PV of cash outflows
NPV = $279.97 million - $165 million = $114.97 million
Therefore, the NPV of the project is $110 million (closest answer).

New Flyer Industries Has Decided to Expand Its Production of Hybrid