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A company is considering a project which requires $2.3 million in capital investment. The project can bring in an annual revenue of $550k/year next

 

A company is considering a project which requires $2.3 million in capital investment. The project can bring in an annual revenue of $550k/year next 19 years. The annual operation cost (e.g. labor and supplies) is $83k/year. Starting from year 14, the equipment will need major maintenance and this cost starts at $105k/year and increase by $105k each year until the end of the project life time (19 years). The equipment has a salvage value of $575k at the end of the project. Calculate the project's net future value at year 19 to find out whether it's worth investing. The interest rate is 9%.

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SOLUTION To calculate the net future value NFV of the project at year 19 we need to consider the cash flows generated by the project and discount them ... blur-text-image

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