The manufacture of folic acid is a competitive business. A new plant costs $100,000 and lasts for three years. The cash flow from the plant is as follows: Year-1: +43,300, Year-2: $43,300 and Year-3 = 58,300. (Assume there is no tax.) If the discount rate is 20%, what is the value of the plant at the end of year one?

a) Calculate the New value for the firm, and would you scrap the plant at the end of year-one?

b) Calculate value of the plant at the end of year-two and would you scrap the plant at the end of year-2? (yes/No) give brief explanation.

Show all answers and work. Please don't show how to solve on a calculator.