You are thinking of making an investment in a new factory. The factory will generate revenues of $1,960,000 per year for as long as you maintain it. You expect that themaintenance costs will start at $90,160 per year and will increase 5% 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 factorycan be built and become operational immediately and the interest rate is 6% per year.a. What is the present value of the revenues? -b. What is the present value of the maintenance costs?c. If the plant costs $19,600,000 to build, should you invest in the factory?EIER

This is a case of perpetuity. Perpetuity is a stream of cash flows that continues forever or that…

Answered: You are thinking of making an…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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A dry cleaning store is expected to make annual cash flows forever. The cost of capital for the store is 14.01 percent. The next annual cash flow is expected in one year from today and all subsequent cash flows are expected to grow annually by 3.49 percent. What is the value of the dry cleaning store if the cash flow in 5 years from today is expected to be $236,000.007 O $1,955,702.16 (plus or minus 10 dollars) O $1,408,521.54 (plus or minus 10 dollars) O $1,164,612.73 (plus or minus 10 dollars) O $2,243,346.01 (plus or minus 10 dollars) $1.084,511.06 (plus or minus 10 dollars)
Formasa Plastics has major fabrication plants in Manila and Pampanga. The president wants to know the equivalent future worth of ₱1 million capital investments each year for 8 years, starting 1 year from now. Formasa capital earns at a rate of 14% per year. Draw cash flow Diagram. Find the value of Future worth?
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You are a financial analyst for a division of General Motors. Your division is considering two investment projects to increase the use of robotics in automotive assembly, each of which requires an up-front expenditure of $25 million. You estimate that the cost of capital is 10% and that the investments will produce the following after-tax cash flows (in millions of dollars): Year Project A Project B 1 $5 $20 2 10 10 3 15 8 4 20 6 a. What is the regular payback period for each of these projects? b. What is the discounted payback period for each of these projects? c. If the two projects are independent and the cost of capital is 10%, using NPV and IRR which project(s) should GM undertake? d. If the two projects are mutually exclusive and the cost of capital is 5%, using NPV which project…
The owner of a bicycle repair shop forecasts revenues of $172,000 a year. Variable costs will be $53,000, and rental costs for the shop are $33,000 a year. Depreciation on the repair tools will be $13,000. a. Prepare an income statement for the shop based on these estimates. The tax rate is 20%. b. Calculate the operating cash flow for the repair shop using the three methods given below: Now calculate the operating cash flow. Dollars in minus dollars out. Adjusted accounting profits. Add back depreciation tax shield
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