A factory costs $890,000. You reckon that it will produce an inflow after operat

Question

A factory costs $890,000. You reckon that it will produce an inflow after operating costs of $179,000 a year for 13 years.

If the opportunity cost of capital is 15%, what is the net present value of the factory? (Do not round intermediate calculations.Round your answer to 2 decimal places.)

What will the factory be worth at the end of eight years? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

If the opportunity cost of capital is 15%, what is the net present value of the factory? (Do not round intermediate calculations.Round your answer to 2 decimal places.)

Explanation / Answer

Hi,

Please find the detailed answer as follows:

Part A:

NPV = -890000 + 179000/(1+.15)^1 + 179000/(1+.15)^2 + 179000/(1+.15)^3 + 179000/(1+.15)^4 + 179000/(1+.15)^5 + 179000/(1+.15)^6 + 179000/(1+.15)^7 + 179000/(1+.15)^8 + 179000/(1+.15)^9 + 179000/(1+.15)^10 + 179000/(1+.15)^11 + 179000/(1+.15)^12 + 179000/(1+.15)^13 = $109383.31

----

Part B:

Value after 8 Years = NPV*(1+Interest Rate)^8 = 109383.31*(1+.15)^8 = $334606.03

Thanks.

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