Management is trying to decide whether or not to build a new factory. They believe sales are increasing for their products. They have estimated revenues of $80,000 in year one, $70,000 in years two through ten. In 10 years the factory is obsolete. They estimate expenses annually to operate the factory after year 1 would be $35,000. The cost of the new factory is $350,000. The payments required are $90,000 immediately with the remainder due at completion. The company has hurdle rate of 8%. Use these tables to solve the problems. a. What is the net present value of this new factory? (Note that if your answer is negative then you need to place parentheses around it) $(221358:92) xo (54240) b. What would the net present value be if the factory only produces goods for 9 years?
Management is trying to decide whether or not to build a new factory. They believe sales are increasing for their products. They have estimated revenues of $80,000 in year one, $70,000 in years two through ten. In 10 years the factory is obsolete. They estimate expenses annually to operate the factory after year 1 would be $35,000. The cost of the new factory is $350,000. The payments required are $90,000 immediately with the remainder due at completion. The company has hurdle rate of 8%. Use these tables to solve the problems. a. What is the net present value of this new factory? (Note that if your answer is negative then you need to place parentheses around it) $(221358:92) xo (54240) b. What would the net present value be if the factory only produces goods for 9 years?
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
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Transcribed Image Text:Management is trying to decide whether or not to build a new factory. They believe sales are
increasing for their products. They have estimated revenues of $80,000 in year one, $70,000 in
years two through ten. In 10 years the factory is obsolete.
They estimate expenses annually to operate the factory after year 1 would be $35,000.
The cost of the new factory is $350,000. The payments required are $90,000 immediately with the
remainder due at completion.
The company has hurdle rate of 8%.
Use these tables to solve the problems.
a. What is the net present value of this new factory? (Note that if your answer is negative then
you need to place parentheses around it)
$(221358.92) x (54240)
b. What would the net present value be if the factory only produces goods for 9 years?
(238867.64) x (70445)
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