Question

A factory costs $840,000. You reckon that it will produce an inflow after operating costs of $174,000 a year for 14 years.

a. If the opportunity cost of capital is 10%, what is the net present value of the factory? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Net present value            $

b. What will the factory be worth at the end of seven years? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Future value            $

Answer 1

Statement showing Cash flows
Particulars	Time	PVf 10%	Amount	PV
Cash Outflows	-	1.00	(840,000.00)	(840,000.00)
PV of Cash outflows = PVCO				(840,000.00)
Cash inflows	1-14	7.36669	174,000.00	1,281,804.06
PV of Cash Inflows =PVCI				1,281,804.06
NPV of factory = PVCI - PVCO				441,804.06
b)
Worth of factory at the end of seven years= 174000*4.86842	847,105.08
Time	PVf at 10%
1.00	0.90909
2.00	0.82645
3.00	0.75131
4.00	0.68301
5.00	0.62092
6.00	0.56447
7.00	0.51316
8.00	0.46651
9.00	0.42410
10.00	0.38554
11.00	0.35049
12.00	0.31863
13.00	0.28966
14.00	0.26333
PVF for 14 Years	7.36669