Digital Healthcare Co

Subject:FinancePrice: Bought3

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Digital Healthcare Co., a mid-size electronic medical device maker,

has decided to downsize as a measure to reduce cost in response weak demand. The company is considering implementing one of two plans:

-Plan A: the first plan involves closing and selling a manufacturing plant in Maple Ridge, which is expected to generate a salvage value of $5 million today (year 0) and save $1.5 million annually in cost and expenses over the next 10 years (years 1 to 10). However, the company will lose $1 million in revenue the first year (year 1), and the loss will increase by 10% per year over the following 9 years (years 2 to 10).
-Plan B: the second plan involves closing and selling an R&D division in North Van that will generate $8 million today (year 0). Revenue will not be affected for five years but will suffer a reduction of $3 million in years 6-10 due to lack of competitiveness.The company's cost of capital (i.e., the discount rate it should use) is 12% per year. What is the net present value of each plan? Assume you can ignore taxes. (Note: Your answer should be expressed in units of millions of dollars.)
NPV Plan A = $____ million
NPV Plan B = $____ million