Brett Collins is reviewing his company’s investment in a cement plant. The company paid $15,300,000 five years ago to acquire the plant. Now top management is considering an opportunity to sell it. The president wants to know whether the plant has met original expectations before he decides its fate. The company’s desired rate of return for present value computations is 9 percent. Expected and actual cash flows
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Brett Collins is reviewing his company’s investment in a cement plant. The company paid $15,300,000 five years ago to acquire the plant. Now top management is considering an opportunity to sell it. The president wants to know whether the plant has met original expectations before he decides its fate. The company’s desired
| Year 1 | Year 2 | Year 3 | Year 4 | Year 5 | |||||||||||
| Expected | $ | 3,360,000 | $ | 5,040,000 | $ | 4,590,000 | $ | 5,160,000 | $ | 4,270,000 | |||||
| Actual | 2,620,000 | 2,990,000 | 4,830,000 | 3,890,000 | 3,590,000 | ||||||||||
Required
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a.&b. Compute the
net present value of the expected and actual cash flows as of the beginning of the investment. (Negative amounts should be indicated by a minus sign. Round your intermediate calculations and final answer to the nearest whole dollar.)
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