Question

In: Finance

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 ,510, 000 per year for as long as you maintain it. You expect that the maintenance costs will start at $ 77 ,010 per year and will increase 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 % 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 $ 15 ,100 , 000 to​ build, should you invest in the​ factory?

Solutions

Expert Solution

Year Revenue Cost Net earning NPV of Revenue NPV of manufacturing cost
1 1510000 77010 1432990 29459338 3979704
2 1510000 80090.4 1429910
3 1510000 83294.02 1426706
4 1510000 86625.78 1423374
5 1510000 90090.81 1419909
6 1510000 93694.44 1416306
7 1510000 97442.22 1412558
8 1510000 101339.9 1408660
9 1510000 105393.5 1404606
10 1510000 109609.2 1400391
11 1510000 113993.6 1396006
12 1510000 118553.4 1391447
13 1510000 123295.5 1386705
14 1510000 128227.3 1381773
15 1510000 133356.4 1376644
16 1510000 138690.7 1371309
17 1510000 144238.3 1365762
18 1510000 150007.8 1359992
19 1510000 156008.1 1353992
20 1510000 162248.5 1347752
21 1510000 168738.4 1341262
22 1510000 175487.9 1334512
23 1510000 182507.4 1327493
24 1510000 189807.7 1320192
25 1510000 197400.1 1312600
26 1510000 205296.1 1304704
27 1510000 213507.9 1296492
28 1510000 222048.2 1287952
29 1510000 230930.1 1279070
30 1510000 240167.3 1269833
31 1510000 249774 1260226
32 1510000 259765 1250235
33 1510000 270155.6 1239844
34 1510000 280961.8 1229038
35 1510000 292200.3 1217800
36 1510000 303888.3 1206112
37 1510000 316043.8 1193956
38 1510000 328685.6 1181314
39 1510000 341833 1168167
40 1510000 355506.3 1154494
41 1510000 369726.6 1140273
42 1510000 384515.7 1125484
43 1510000 399896.3 1110104
44 1510000 415892.1 1094108
45 1510000 432527.8 1077472
46 1510000 449828.9 1060171
47 1510000 467822.1 1042178
48 1510000 486535 1023465
49 1510000 505996.4 1004004
50 1510000 526236.2 983763.8
51 1510000 547285.7 962714.3
52 1510000 569177.1 940822.9
53 1510000 591944.2 918055.8
54 1510000 615622 894378
55 1510000 640246.8 869753.2
56 1510000 665856.7 844143.3
57 1510000 692491 817509
58 1510000 720190.6 789809.4
59 1510000 748998.2 761001.8
60 1510000 778958.2 731041.8
61 1510000 810116.5 699883.5
62 1510000 842521.2 667478.8
63 1510000 876222 633778
64 1510000 911270.9 598729.1
65 1510000 947721.7 562278.3
66 1510000 985630.6 524369.4
67 1510000 1025056 484944.2
68 1510000 1066058 443941.9
69 1510000 1108700 401299.6
70 1510000 1153048 356951.6
71 1510000 1199170 310829.7
72 1510000 1247137 262862.9
73 1510000 1297023 212977.4
74 1510000 1348904 161096.5
75 1510000 1402860 107140.3
76 1510000 1458974 51025.94

jeff jeffy answered 1 year ago
Next > < Previous

Related Solutions

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...
ABC Ltd is considering an investment of $210,000 in a project that will generate revenues of...
ABC Ltd is considering an investment of $210,000 in a project that will generate revenues of $400,000 at the end of the first year, $300,000 at the end of the second year and $600,000 at the end of the third year. The expenses of the project are as follows: $250,000 in the first year, $120,000 in the second year and $300,000 in the third year. Additional to the revenue and expenses Working Capital of $150,000 is needed throughout the project....
First, choose 1 key approach on how to generate new ideas: Breaking old thinking patterns, Making...
First, choose 1 key approach on how to generate new ideas: Breaking old thinking patterns, Making new connections, or Getting fresh perspectives. After choosing, discuss one problem based on your course (accountancy) that you might face in your future profession or workplace environment. IN THIS CASE - ACCOUNTING FIRM OR ACCOUNTANCY. Then, apply the chosen key approach to the problem you might encounter in your future profession or workplace environment. Finally, enumerate six reasons or ways as to how you...
You are considering an investment in a new factory that will operate for 3 years. The...
You are considering an investment in a new factory that will operate for 3 years. The initial investment will be 453429. The nominal revenues at the end of Year 1 will be $250000. Revenues will grow at a real rate of 1%. Inflation will be 2%. The nominal costs at the end of Year 1 will be $30000. Costs will grow at a nominal 4% rate. The investment will depreciated on a straight line basis to zero over 3 years....
A new semi-automatic machine costs $ 80,000 and is expected to generate revenues of $ 40,000...
A new semi-automatic machine costs $ 80,000 and is expected to generate revenues of $ 40,000 per year for 6 years. It will cost $ 25,000 per year to operate the machine. At the end of 6 years, the machine will have a salvage value of $ 10,000. Evaluate the investment in this machine using all four methods (payback period, present worth, uniform annual cost (UAC), and rate of return). Neglect the salvage value for the payback period method and...
Pharma-Corp is considering investing in a new project that will generate revenues of $9 million in...
Pharma-Corp is considering investing in a new project that will generate revenues of $9 million in its first year of operation and these revenues will grow at the rate of 3% per year thereafter. The project also entails R&D expenditures of $3 million in the first year of operation and these expenditures are expected to grow at the rate of 10% per year. The project would be pursued only as long as it yields a positive net cash flow. That...
You are looking at investing in a new investment product which will generate cash flows of...
You are looking at investing in a new investment product which will generate cash flows of $2,000 next year and the cash flows will grow by 5% per year. You will receive payments for the following 6 years (a total of 6 payments including the first payment of $2,000 next year). If the appropriate discount rate to evaluate the product is 4%, how much is the investment product worth to you today?
Evelyn is planning on making an investment that will generate cash flows of $1,000 per quarter...
Evelyn is planning on making an investment that will generate cash flows of $1,000 per quarter for 3 years with the first payment occurring immediately. Similar risk investments are offering a return of 10% p.a. compounded quarterly. How much should Evelyn be prepared to pay for this investment?
Part A Bennett Co. has a potential new project that is expected to generate annual revenues...
Part A Bennett Co. has a potential new project that is expected to generate annual revenues of $260,300, with variable costs of $143,200, and fixed costs of $60,700. To finance the new project, the company will need to issue new debt that will have an annual interest expense of $23,500. The annual depreciation is $24,800 and the tax rate is 35 percent. What is the annual operating cash flow? Part B Bruno's Lunch Counter is expanding and expects operating cash...
Small Effect Corp is considering investing $70 million in a new factory that will generate net...
Small Effect Corp is considering investing $70 million in a new factory that will generate net monthly cash flows beginning four months from today. The first cash flow will equal $2 million and subsequent cash flows will shrink by 1% each through the final cash flow which will occur four years and 1 month from today. The project’s cost of capital equals 12.5% per year. Set up the calculations needed to determine the net present value of factory.
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT