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A factory cost $93,000 to purchase.You believe (certain) that it will produce a cash inflow, net of all the costs, of $10,000 a year at
- A factory cost $93,000 to purchase.You believe ("certain") that it will produce a cash inflow, net of all the costs, of $10,000 a year at the end of each of each of the next 3 years and then is sold for $100,000, immediately after it returns its last cash inflow of $10,000. The opportunity cost of capital is 10 percent.
a. What is the net present value of the factory?Show work.
b. What will this factory be worth at the end of 2 years? (In other words, how much would you pay for it at year-end 2 if the applicable cost of opportunity was 10%?) Show work.
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