You are thinking of making an investment in a new factory. The factory will generate revenues...

You are thinking of making an investment in a new factory. The factory will generate revenues of $ 1 comma 760 comma 000$1,760,000 per year for as long as you maintain it. You expect that the maintenance costs will start at $ 93 comma 280$93,280 per year and will increase 4 %4% per year thereafter. Assume that all revenue and maintenance costs occur at the end of the year. You intend to run the factory as long as it continues to make a positive cash flow (as long as the cash generated by the plant exceeds the maintenance costs). The factory can be built and become operational immediately and the interest rate is 5 %5% per year. a. What is the present value of the revenues? b. What is the present value of the maintenance costs? c. If the plant costs $ 17 comma 600 comma 000$17,600,000 to build, should you invest in the factory?

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jeff jeffy answered 1 year ago

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