Part 2: Net Present Value 3. An Oklahoma-based company is interested in establishing a small ethanol refinery. Before they start, they want to determine the Net Present Value (NPV) to see if it's a worthwhile project. The ethanol refinery's cash inflows and outflows are listed in the table below. The time horizon is 3 years, with a discount rate of 5%. The initial investment is $100,000. a. First, complete the table by calculating the net cash flows for each of the three years. Cash Inflows Cash Outflows Net Cash Flow Year 1 Year 2 Year 3 $115,000 $150,000 $165,000 $173,000 $82,000 $59,500 b. Second, determine the NPV of the ethanol refinery. c. After calculating the NPV, should they build the ethanol plant? Briefly explain why.
Part 2: Net Present Value 3. An Oklahoma-based company is interested in establishing a small ethanol refinery. Before they start, they want to determine the Net Present Value (NPV) to see if it's a worthwhile project. The ethanol refinery's cash inflows and outflows are listed in the table below. The time horizon is 3 years, with a discount rate of 5%. The initial investment is $100,000. a. First, complete the table by calculating the net cash flows for each of the three years. Cash Inflows Cash Outflows Net Cash Flow Year 1 Year 2 Year 3 $115,000 $150,000 $165,000 $173,000 $82,000 $59,500 b. Second, determine the NPV of the ethanol refinery. c. After calculating the NPV, should they build the ethanol plant? Briefly explain why.
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
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Transcribed Image Text:Part 2: Net Present Value
3. An Oklahoma-based company is interested in establishing a small ethanol refinery. Before they
start, they want to determine the Net Present Value (NPV) to see if it's a worthwhile project. The
ethanol refinery's cash inflows and outflows are listed in the table below. The time horizon is 3
years, with a discount rate of 5%. The initial investment is $100,000.
a. First, complete the table by calculating the net cash flows for each of the three years.
Cash Inflows.
Cash Outflows
Net Cash Flow
Year 1
Year 2
Year 3
$115,000
$150,000
$165,000
$173,000
$82,000
$59,500
b. Second, determine the NPV of the ethanol refinery.
c. After calculating the NPV, should they build the ethanol plant? Briefly explain why.
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