Logo
Home Study Material Contact Search
AI Chat FREE
  1. business
  2. finance
  3. a factory costs $860,000. you reckon that it will

A factory costs $860,000. You reckon that it will produce an inflow after operating costs of...

Free

70.2K

Verified Solution

Question

Finance

A factory costs $860,000. You reckon that it will produce aninflow after operating costs of $176,000 a year for 10 years.

a. If the opportunity cost of capital is 12%,what is the net present value of the factory? Answer:$134,439.25

b. What will the factory be worth at the end of nineyears?

No idea

Answer & Explanation Solved by verified expert
4.5 Ratings (889 Votes)

a.
Net present value of factory is calculated as present value of cash inflow less present value of cash outflow
Calculation of net present value of factory.
Year Cash flow Discount @ 12% Present value
0 -$860,000.00 1.00000 -$860,000.00
1 $176,000.00 0.89286 $157,142.86
2 $176,000.00 0.79719 $140,306.12
3 $176,000.00 0.71178 $125,273.32
4 $176,000.00 0.63552 $111,851.18
5 $176,000.00 0.56743 $99,867.13
6 $176,000.00 0.50663 $89,167.08
7 $176,000.00 0.45235 $79,613.46
8 $176,000.00 0.40388 $71,083.45
9 $176,000.00 0.36061 $63,467.36
10 $176,000.00 0.32197 $56,667.29
$134,439.25
Thus, net present value of factory is $134,439.25.
b.
At end of nine years, the remaining cash inflow would be $170,000 and so the worth of factory at end of nine years would be present value of $170,000 at end of ninth year.
Calculation of present value of $170,000
Worth of factory 170000*(1/(1.12^1))
Worth of factory $151,785.71
Thus, the factory would be worth of $151,785.71 at end of nine years.
Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:
  • Unlimited Question Access with detailed Answers
  • Zin AI - 3 Million Words
  • 10 Dall-E 3 Images
  • 20 Plot Generations
  • Conversation with Dialogue Memory
  • No Ads, Ever!
  • Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!
Become a Member

Other questions asked by students

Statistics
1.2K views

A statistics teacher wants to see if there is any difference in the abilities of students...

Psychology
1.2K views

Blake has developed a new measure of personality to assess what personality type people have. It...

Statistics
1.2K views

The Relationship Between State Agencies and Nonprofit Organizations Introduction The relationship between government agencies and nonprofit organizations...

General Management
1.2K views

Talk about the pros and cons to different pricing strategies (for example complex, hard to implement,...

Physics
1.2K views

1 10 cm 2 20 cm 17 32 Two particles execute S H M of...

Geometry
1.2K views

Find the total area enclosed by 7 non overlapping rectangles if each rectangle is 8...

Basic Math
1.2K views

The cost to purchase a song from iTunes is $0.99 per song. To purchase a...

Accounting
1.2K views

The incomplete income statement of Concord Corp. follows. Sales revenue ...

Accounting
1.2K views

The assembly division of Marzollo Time Pieces, Inc. uses the weighted-average method of process costing....

Accounting
1.2K views

514-7 Justice Inc. began 2020 with the following account balances: Common shares, 150,000 shares authorized,...

Finance
1.2K views

You are using an old machine with a remaining life of 3 years. This old...

Finance
1.2K views

Assignment Score: 20.0 mework 7 Save Submit Assignment for Gradiru Question 3 of 5 oblem...