Assume Ford Motors expects a new hybrid-engine project to produce incremental cash flows of $50 million each year, and expects these to grow at 4% each year. The upfront project costs are $420 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

B) Compute present value of the cash flows at WACC and subtract investment costs as well as issuance costs. 11ea84dc_f52d_4e03_9a63_07ce95a81dd8_TB1316_00_TB1316_00 Cash outflows = $420 million + $20 million = $440 million;
NPV = $1000 million - $440 million = $560 million

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