You are thinking of making an investment in a new plant. The plant will generate revenues of $1,000,000 per year for as long as you maintain it. You expect that the maintenance cost will start at $50,000 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 plant 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 plant can be built and become operational immediately. If the plant costs $10,000,000 to build, and the interest rate is 6% per year, should you invest in the plant? The net present value (NPV) is $ (Round to the nearest dollar.)
You are thinking of making an investment in a new plant. The plant will generate revenues of $1,000,000 per year for as long as you maintain it. You expect that the maintenance cost will start at $50,000 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 plant 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 plant can be built and become operational immediately. If the plant costs $10,000,000 to build, and the interest rate is 6% per year, should you invest in the plant? The net present value (NPV) is $ (Round to the nearest dollar.)
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:You are thinking of making an investment in a new plant. The plant will generate revenues of $1,000,000 per
year for as long as you maintain it. You expect that the maintenance cost will start at $50,000 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 plant 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 plant can be built and become operational immediately. If
the plant costs $10,000,000 to build, and the interest rate is 6% per year, should you invest in the plant?
The net present value (NPV) is $
(Round to the nearest dollar.)
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