GDebi Enterprises is thinking of building a chemical processing plant to produce
ID: 2758531 • Letter: G
Question
GDebi Enterprises is thinking of building a chemical processing plant to produce 4-hydroxy-3-methoxybenzaldehyde. The firm estimates that the initial cost of the project will be $11.3 million, and the plant will produce cash inflows of $6.9 million for the next 5 years, after which time the project will terminate. In the 6th year however, the firm will need to clean up the site, which it estimates will cost it $4.5 million. The discount rate the firm wants to use for the project is 13.9 percent. What is the NPV of this project? (Enter answer in millions.)
Explanation / Answer
Solution:
Calculation of NPV of the Project (Amount in Million $)
Year
Cash Flow
PV factor @ 13.90%
Present Value
0
($11.30)
1
($11.30)
1
$6.90
0.878
$6.06
2
$6.90
0.771
$5.32
3
$6.90
0.677
$4.67
4
$6.90
0.594
$4.10
5
$6.90
0.522
$3.60
6
($4.50)
0.458
($2.06)
Net Present Value
$10.38
Net Present Value of the project is $10.38 Million
Calculation of NPV of the Project (Amount in Million $)
Year
Cash Flow
PV factor @ 13.90%
Present Value
0
($11.30)
1
($11.30)
1
$6.90
0.878
$6.06
2
$6.90
0.771
$5.32
3
$6.90
0.677
$4.67
4
$6.90
0.594
$4.10
5
$6.90
0.522
$3.60
6
($4.50)
0.458
($2.06)
Net Present Value
$10.38
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