Pre-Investment NPV
Need Help Answering Two Questions please, a and b.
So, a factory costs $1million to build and will generate net cash flow starting next year of $100,000 per year for 200 years, after which the factory will be worthless. So, $1m must be invested now. The same cash flow will be available in years 2 through 10. .
a. If the discount rate is 10%, what is the NPV before you invest? How can there be an NPV before investment if the investment itself creates the firm.
b. What is the IRR before you invest? Wouldn't the IRR be infinite here?
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