A factory costs $970,600. You forecast that it will produce cash inflows of $839,085 in year 1, $85,000 in year 2, and $200,000 in year 3. The discount rate is 15.50%. a. Calculate the PV of cash inflows. (Do not round intermediate calculations. Round your answer to 2 decimal places.) Present value $ b. Should the company invest in the factor? (Click to select)
A factory costs $970,600. You forecast that it will produce cash inflows of $839,085 in year 1, $85,000 in year 2, and $200,000 in year 3. The discount rate is 15.50%. a. Calculate the PV of cash inflows. (Do not round intermediate calculations. Round your answer to 2 decimal places.) Present value $ b. Should the company invest in the factor? (Click to select)
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
Related questions
Question
![### Investment Analysis Exercise
A factory costs $970,600. You forecast that it will produce cash inflows of $839,085 in year 1, $85,000 in year 2, and $200,000 in year 3. The discount rate is 15.50%.
#### Tasks:
**a. Calculate the Present Value (PV) of cash inflows.**
*(Do not round intermediate calculations. Round your answer to 2 decimal places.)*
- **Present Value**: \$ [Input Box]
**b. Should the company invest in the factory?**
- [Dropdown Selection Box]](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Ff8c879c5-4abd-41e0-a23b-c4f185aff8d4%2F78cb0264-3bfa-44a7-8a31-90c06c261b0b%2Fnqge5z2_processed.jpeg&w=3840&q=75)
Transcribed Image Text:### Investment Analysis Exercise
A factory costs $970,600. You forecast that it will produce cash inflows of $839,085 in year 1, $85,000 in year 2, and $200,000 in year 3. The discount rate is 15.50%.
#### Tasks:
**a. Calculate the Present Value (PV) of cash inflows.**
*(Do not round intermediate calculations. Round your answer to 2 decimal places.)*
- **Present Value**: \$ [Input Box]
**b. Should the company invest in the factory?**
- [Dropdown Selection Box]
Expert Solution
Step 1Basic Information
The question is related to Capital Budgeting. The Net Present Value is the difference between Present Value of Cash Inflow and Present Value of Cash Outflow.
Net Present Value = Present Value of Cash Inflow - Present Value of Cash Outflow
Acceptance Criteria:- If NPV is Positive.
Present Value is calculated with the help of following formula
1 ÷ (1 + r)n
where
n = number of years
r = Discount rate
Step by step
Solved in 2 steps
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Recommended textbooks for you
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education