Question
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
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-$10000 000, CF1=CF2=0, CF3=-$6000 000, CF4=CF5=CF7= CF8 = CF 10 = CF 11 = CF13=CF14= $3000 000, CF6=CF9 = 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
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