1. Reexamine the capital investment decision in the disposable diaper industry (

    1. Reexamine the capital investment decision in the disposable diaper industry (Example 15.3)from the point of view of an incumbent firm. If P&G or Kimberly- Clark were to expand capacity by building three new plants they would not need to spend $60 million on R&D before start-up. How does this advantage affect the NPV calculations in Table 15.5 (page 567)? Is the investment profitable at a discount rate of 12 percent?2. Suppose you can buy a new Toyota Corolla for $20000 and sell it for $12000after six years. Alternatively you can lease the car for $300per month for three years and return it at the end of the three years. For simplification assume that lease payments are made yearly instead of monthly-i.e. that they are $3600 per year for each of three years. a. If the interest rate Y is 4 percent is it better to lease or buy the car? b. Which is better if the interest rate is 12 percent? c. At what interest rate would you be indifferent between buying and leasing the car?

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