Answered step by step
Verified Expert Solution
Question
1 Approved Answer
You are thinking of making an investment in a new plant. The plant will generate revenues of $ 1 . 8 6 million per year
You are thinking of making an investment in a new plant. The plant will generate revenues of $ million per year for as long as you maintain it You expect that the maintenance costs will start at $ per year and will increase 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 and the interest rate is per year.
a What is the present value of the revenues?
b What is the present value of the maintenance costs?
c If the plant costs $ million to build, should you invest in the plant?
c If the plant costs $ million to build, should you invest in the plant? Select the best choice below.
A The NPV is $ which is negative, so you should not invest in the new plant.
B The NPV is $ which is positive so you should invest in the new plant.
C The NPV is $ which is positive, so you should invest in the new plant.
D The NPV is $ which is positive, so you should invest in the new plant.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored 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