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A firm is contemplating investing in a tank farm. The initial investment requirement would be $425,000,000 ($300,000,000 in the first year and $125,000,000 in the

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A firm is contemplating investing in a tank farm. The initial investment requirement would be $425,000,000 ($300,000,000 in the first year and $125,000,000 in the second year). In addition, in year 10, the tank farm will have to be closed for renovation at a cost of $50,000,000. During year 10, no cash inflow will be generated. The duration of the project is 20 years. The cash inflow in year 1 is estimated to be $35 million increasing by 5 percent per year from year 2 to 9. In year 11 to 20, the cash flows will stabilize at 75,000,000 per year. Also, in year 20 the tank farm will be sold for $100,000,000. The discount rate is 10 percent in years 1 to 9 and 15 percent in years 10 to 20. 1. Calculate the cash flows in years 2 to 9, and in year 11. 2. Calculate the value of the project in year 0. 3. Should we make this investment? 4. Why should we make or not make this investment

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