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LEZ Enterprises, Inc. has been considering the purchase of a new manufacturing facility for $700,000. The...

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Finance

LEZ Enterprises, Inc. has been considering the purchase of a newmanufacturing facility for $700,000. The facility is to bedepreciated on a straight line basis over 14 years. It is expectedto have no value after those 14 years. Cash flow from depreciationare considered to be risk-free and so they should be discounted atthe risk-free rate. Operating revenues from the facility areexpected to be $160,000 during the first year. The revenues areexpected to increase at the rate of 2.2% per year which is alsoexpected to be the inflation rate. Production costs in the firstyear are $25,000 and they are expected to remain constant eachyear. The project ends after 14 years. LEZ’s cost of capital is15%. Its corporate tax rate 21%. The risk-free rate 3%. What is theNPV of this project?

Answer & Explanation Solved by verified expert
4.2 Ratings (828 Votes)
IInitial Investment700000Present ValuePV of Cash FlowCash Flow1iNNYear of cash flowiDiscount Rate3003 for    See Answer
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