You company wants to build a new small plant that will cost $90,000,000 to construct. You...

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Finance

You company wants to build a new small plant that willcost $90,000,000 to construct. You will
pay the construction engineering firm $45,000,000 todayand another $45,000,000 at the end of the first year ofconstruction. The plant will be finished 24 months from the startof construction. Each year of operation, the plant will takecharges of $5,000,000 per year at the beginning of the year for rawmaterials, labor, and maintenance. Each year of operation, theplant will take credits of $20,000,000 in sales revenues at the endof the year. If the company requires a MARR of 15% and the plant isexpected to have a life of 15 years of production, answer thefollowing questions:
a. What is the simple Payback Period for this projectignoring the effects of time value of money? b. What is the NPV ofthis project using the MARR? c. What is the Discounted PaybackPeriod of this project using the MARR? d. What is the IRR for thisproject?

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4.4 Ratings (608 Votes)

since the cost of RM is considered in the year 2 onwards even though operations start from year 3 That is because the cost is incurred at the start of year which is very close See Answer

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