1. What's the NPV of this project for General Motors?
25% discount rate
Annual Cash Flows
Year 1
120,000,000
PV = $96,000,000
Year 2
80,000,000
PV = $51,200,000
Year 3
60,000,000
PV = $30,720,000
Total PV of annual cash flows = $177,920,000.00
Less: 2,000,000
= ($22,080,000) NPV
2. What's the NPV of this project for Toyota?
10% discount rate
Year 1
120,000,000
PV = $109,090,909
Year 2
80,000,000
PV = $138,842,975
Year 3
60,000,000
PV = $45,078,888
Total PV of annual cash flows is $293,012,772
Less: $200,000,000
= $93,012,772 NPV
If you have any problems using the PV formula let me know.
I seriously don't know the answer, but what I do know is that you need to get a tooter.
It will help
@ Mia - Tooter. That is funny. EVERY ONE has a tooter. Did you mean tutor?
Where do you get the 2million from? How do u know to subtract this?
General Motors (or Toyota) is thinking of investing in new production equipment, which will cost $200 million in year zero, and will generate cost savings of $120 million in year 1, $80 million in year 2, and $60 million in year 3. After 3 years, the salvage value is zero. The cost of capital (discount rate) is 25% for General Motors and 10% for Toyota. (Due to GM's recent bankruptcy, investors are scared to lend it money, so GM has to pay much higher interest rates to attract capital).
1. What's the NPV of this project for General Motors?
2. What's the NPV of this project for Toyota?
I have the formula, but I seriously do not know how to solve the problem.
Can somebody help me solve this problem and explain how to do it. I am not asking anybody to do it for me. I e-mailed my professor and he has not responded to me :(
