8.13 8.14 A new plant to produce tractor gears requires an initial investment of $10 million....

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8.13 8.14 A new plant to produce tractor gears requires an initial investment of $10 million. It is expected that a supplemental investment of $4 million will be needed every 3 years to update the plant. The plant is expected to start producing gears 2 years after the initial investment is made (at the start of the third year). Revenues of $5 million per year are expected to begin to flow at the start of the fourth year. Annual operating and maintenance costs are expected to be $2 million per year. The plant has a 15-year life. List the annual cash flows. Ans. CF0-$10 000 000, CF = CF2=0, CF3 = -$6000 000, CF4=CF3=CF7=CF8 = CF10 = CF 11 = CF13 CF14 $3000 000, CF6- CF, CF12=CF15=-$1 000 000 What is the NPV of the plant in Problem 8.13 if the interest rate is 10% per year, compounded annually? Ans. -$5336645.33 8.16 A different plant from the one described in Problem 8.13 can be built for an initial investment of $13 million and no supplemental investments. All other data are the same as in Problems 8.13 and 8.14. (a) Compute the net present value. (b) Is this plant an economically acceptable investment? Ans. (a) +$855708.47; (b) yes 8.13 8.14 A new plant to produce tractor gears requires an initial investment of $10 million. It is expected that a supplemental investment of $4 million will be needed every 3 years to update the plant. The plant is expected to start producing gears 2 years after the initial investment is made (at the start of the third year). Revenues of $5 million per year are expected to begin to flow at the start of the fourth year. Annual operating and maintenance costs are expected to be $2 million per year. The plant has a 15-year life. List the annual cash flows. Ans. CF0-$10 000 000, CF = CF2=0, CF3 = -$6000 000, CF4=CF3=CF7=CF8 = CF10 = CF 11 = CF13 CF14 $3000 000, CF6- CF, CF12=CF15=-$1 000 000 What is the NPV of the plant in Problem 8.13 if the interest rate is 10% per year, compounded annually? Ans. -$5336645.33 8.16 A different plant from the one described in Problem 8.13 can be built for an initial investment of $13 million and no supplemental investments. All other data are the same as in Problems 8.13 and 8.14. (a) Compute the net present value. (b) Is this plant an economically acceptable investment? Ans. (a) +$855708.47; (b) yes