GDebi Enterprises is thinking of building a chemical processing plant to produce

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 $10.6 million, and the plant will produce cash inflows of $6 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 $4.9 million. The discount rate the firm wants to use for the project is 12.8 percent. What is the NPV of this project? (Enter answer in millions.)

Explanation / Answer

Year Cashflows PVF@12.8% Present value 0 $                                 10.60 1.000 $                             10.60 1 $                                    6.00 0.887 $                               5.32 2 $                                    6.00 0.786 $                               4.72 3 $                                    6.00 0.697 $                               4.18 4 $                                    6.00 0.618 $                               3.71 5 $                                    6.00 0.548 $                               3.29 6 $                                 (4.90) 0.485 $                             (2.38) Net present value $                             29.43

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