Ford Motors Expects a New Hybrid-Engine Project to Produce Incremental

question 50

Multiple Choice

Ford Motors expects a new hybrid-engine project to produce incremental cash flows of $45 million each year,and expects these to grow at 5% each year.The upfront project costs are $380 million and Ford's weighted average cost of capital is 8%.If the issuance costs for external finances are $10 million,what is the net present value (NPV) of the project?

• A)$990 million
• B)$1125 million
• C)$1110 million
• D)$1200 million

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Definitions:

Monopolistic Competitor

A market structure where many firms sell products that are similar but not identical, thereby having some control over their prices.

Represent

To be a sign or symbol of something; or to act on behalf of someone or something in a legal or formal context.

Monopolistically Competitive Firms

Monopolistically competitive firms operate in a market structure where many companies sell products that are similar but not identical, leading to some degree of market power.

Long-Run Equilibrium

The intersection of the AD and LRAS curves, when wages and prices have adjusted to their final equilibrium levels.