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You have just become the Vice President of the X Corporation and your first task is to determine the firm's facility investment strategy.
You have just become the Vice President of the X Corporation and your first task
is to determine the firm's facility investment strategy. You must evaluate the following potential
options; your firm only has a maximum of $8 Million in total to invest in new projects.
1. An expansion at Facility A will cost $4 Million, take one year to complete,
but generate additional net operating cash inflows of $800,000 per year for
20 years
2. An expansion at Facility B will cost $3.7 Million, take one year to complete,
but generate additional net operating cash inflows of $700,000 per year for
20 years
3. An expansion at Facility C will cost $3 Million, take two years to complete,
but generate additional net operating cash inflows of $700,000 per year for
20 years
Which option (or options) should your firm choose if the discount rate is 12%? You may assume
that net operating cash flows flow at the end of each year.
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