You are thinking of a making an investment of a new plant. The plant will generate revenues
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Question:
You are thinking of a making an investment of a new plant. The plant will generate revenues of $1, 500, 000 per year for as long as you maintain it. You expect that maintenance cost will start at $90, 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 ca be built and become operational immediately. If the plant costs $22, 500, 000 to build , and the interest rate is 6% per year, should you invest in the plant?
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