Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Problem 4-41 You are thinking of malcing an investment in a new plant. The plant will generate revenues of $1 million per year for as
Problem 4-41 You are thinking of malcing an investment in a new plant. The plant will generate revenues of $1 million per year for as long as you maintain it. You expect that the maintenance cost will start at $50,000 per year and will increase 5% per year thereafter. Assume that all revenue and maintenance costs occur at the end of the year. You intend to run the plant as long as it continues to make a positive cash flow [as long as the cash generated by the plant exceeds the maintenance costs). The plant can be built and become operational immediately. If the plant costs $10 million to build, and the interest rate is 6% per year, should you invest in the plant? The question is, how long will it take for $50,000.00 to equal $1,000,000.00 if it grows at 5.00% per year?I Using Excel: !| Is it worth the original investment? Interest rate: 6% Plant operates for years Annual revenues $1,000,000 Initial operating costs $50,000 operating costs annual growth rate 5% Initial investment: $10,000,000 PV of revenues: PV of operating costs: PV of initial investment: NPV
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access with AI-Powered Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started