Use this information to answer questions 13-15.
Big Can, Inc., a U.S. firm, manufactures and sells aluminum cans worldwide. Because of a rising price of aluminum in the U.S., the company is considering to build a new plant in Europe. The plant will cost €20 million to build. Assume that the plant will have a life of 3 years before it is confiscated by the European government zero salvage value and the discount rate of the cash flows is 10%. Consider the following cash flows for this project.
Table 9.2

-Refer to Table 9.2.The net present value NPV of this project in U.S.dollar is estimated at:
A) - $0.11million
B) - $1.27 million
C) $2.33 million
D) $1.14 million

Question

Use this information to answer questions 13-15.
Big Can, Inc., a U.S. firm, manufactures and sells aluminum cans worldwide. Because of a rising price of aluminum in the U.S., the company is considering to build a new plant in Europe. The plant will cost €20 million to build. Assume that the plant will have a life of 3 years before it is confiscated by the European government zero salvage value and the discount rate of the cash flows is 10%. Consider the following cash flows for this project.
Table 9.2
 
-Refer to Table 9.2.The net present value NPV of this project in U.S.dollar is estimated at:
A) - $0.11million 
B) - $1.27 million 
C) $2.33 million 
D) $1.14 million

Quizplus · Accepted Answer

The NPV of the project is negative (-$1.27 million), which means that the project is not worth pursuing. Therefore, the best choice is not to build the new plant in Europe.

Use This Information to Answer Questions 13-15