The Pinkerton Publishing Company is considering two mutually exclusive expansion plans. Plan A calls for the expenditure of $50 million on a large-scale, large-scale, integrated plant that will provide an expected cash flow stream of $8 million million per year for 20 years. Plan B call for the expenditure of $15 million to build a somewhat less efficient, more laborintensive plant that has an expected cash flow stream of $3.4 million per year for 20 years. The firm's cost of capital is 10%. a.) Calculate each project's NPV and IRR. The cash flows for the projects are a re Plan A Plan B Initial Investment -50 -15 million Annual cash flow 8 3.4 million Period 20 20 years Discounting Rate 10% 10% PV of cash flows $68.11 $28.95 Using the PV function NPV $18.11 $13.95 NPV = PV of cash flows - initial investment IRR 15.03% 22.3% Using RATE function c.) Graph the NPV profiles profiles for Plan A, Plan B NPV Plan A Plan B We calculate the NPVs at different discounting rates and m 0% $11 $110.0 0.00 $53 $53..00 4% $58.72 $3 $31.21 8% $28.55 $1 $18.38 12% $9.76 $10.40 16% ($2.57) $5.16 20% ($11.04) $1.56 24% ($17.12) ($1.03) 28% ($21.63) ($2.94) 32% ($25.10) ($4.42)
