EnVo Is Evaluating a Proposal to Move Some Manufacturing Operations

Multiple Choice

EnVo is evaluating a proposal to move some manufacturing operations from an obsolescent plant in Mexico to a new facility in China.The new facility will cost $58 million to open and is expected to result in savings of $16 million per year for the first five years.At the end of five years, Porter will decide either to close the plant in China or to keep it indefinitely.If EnVo closes the plant, the building and equipment can be sold for $20,000,000.If the plant is kept, assume that the $16 million turns into a perpetuity.There is a 30% chance the plant will be closed and a 70% chance it will be kept.Calculate the expected NPV of the project.Use a discount rate of 12%.

A) $75.32 million
B) $30.32 million
C) $56.04 million
D) $114.04 million