Assume General Motors has a weighted average cost of capital of 9%. GM is considering investing in a new plant that will save the company $20 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?

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Quizplus · Accepted Answer

C) Compute the present value of future cash flows using the WACC, and subtract the investment cost. 11ea84dc_f52a_ddf8_9a63_b399c166b071_TB1316_00_TB1316_00 million NPV = -$100 million + $20 million / (1.09) + ($20 million + 111.111111 million) / (1.09)² = $28.7 million

Assume General Motors Has a Weighted Average Cost of Capital