Assume Ford Motors expects a new hybrid-engine project to produce incremental cash flows of $90 million each year and expects these to grow at 3% each year. The upfront project costs are $900 million and Ford's weighted average cost of capital is 9%. If the issuance costs for external finances are $20 million, what is the net present value (NPV) of the project?

Question

Quizplus · Accepted Answer

D) Compute present value of the cash flows at WACC and subtract investment costs as well as issuance costs. 11ea84dc_f52d_26f2_9a63_2fed2216d78d_TB1316_00_TB1316_00 Cash outflows = $900 million + $20 million = $920 million;
NPV = $1500 million - $920 million = $580 million

Assume Ford Motors Expects a New Hybrid-Engine Project to Produce