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You are thinking of making an investment in a new factory. The factory will generate revenues of $1,970,000 per year for as long as you

You are thinking of making an investment in a new factory. The factory will generate revenues of $1,970,000 per year for as long as you maintain it. You expect that the maintenance costs will start at $114,260 per year and will increase 4% per year thereafter. Assume that all revenue and maintenance costs occur at the end of the year. You intend to run the factory 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 factory can be built and become operational immediately and the interest rate is 5% per year. What is the present value of the revenues? What is the present value of the maintenance costs? If the plant costs $19,700,000 to build, should you invest in the factory?

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