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You are contemplating an investment in a new factory expected to generate revenues of $1 million...

You are contemplating an investment in a new factory expected to generate revenues of $1 million per year for as long as you maintain it. You expect maintenance costs will begin at $500,000 per year and increase by 5% per year into the future. Given that the series of revenue and maintenance costs are end-of-year cash flows, you plan to run the operation as long as positive cash flows continue. Assume the factory can be operational immediately for a cost of $3.5 million. If the interest rate is 2.5% per year, should you invest in the factory?

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jeff jeffy answered 6 months ago
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