Question

The management of a farm equipment manufacturer is evaluating a
proposal to build a plant that will manufacture lightweight tractors.
Based on a $10,000 feasibility study, the management prepared the
following cash flow projections.

The plant will be built on a plot of land that the company owns
and that currently is estimated to be worth $10 mil.

The capital expenditure at time 0 is $170 mil. The relevant CCA
rate for capital expenditure is 10%.

The new plant would produce revenues of $100 mil per year for
10 years. The project ends after 10 years and the salvage value
at the end of the project is $100 mil.

Can someone please explain how to get the number 14.29? Thanks

Expansion Problem 0 ... 1 100 2 100 9 100 10 100 (10) (35) 9898 (10) 45 29.25 (10) (35) (10) 45 29.25 (10) 45 29.25 (10) 45 29.25 Sales Sales loss in heavyweight machinery Manufacturing costs Adm and mkt costs S-E (S-E)(1-TC) Capital expenditure Land opportunity cost NWC -Ch NWC CF PV(CF) Total PV (CF excl. CCA TS) (170) 100 (10) 5 5 (3) 5 0 29.25 23.32 (2) 27.25 24.33 5 0 5 29.25 134.25 10.55 43.22 (183) (183) 14.29

Answer 1

Year	0	1	2	3	4	5	6	7	8	9	10
CF	-183	27.25	29.25	29.25	29.25	29.25	29.25	29.25	29.25	29.25	134.25
PV(CF) Formula	-183	=27.25/(1+12%)^1	=29.25/(1+12%)^2	=29.25/(1+12%)^3	=29.25/(1+12%)^4	=29.25/(1+12%)^5	=29.25/(1+12%)^6	=29.25/(1+12%)^7	=29.25/(1+12%)^8	=29.25/(1+12%)^9	=134.25/(1+12%)^10
PV(CF)	-183	24.33	23.32	20.82	18.59	16.60	14.82	13.23	11.81	10.55	43.22
Total PV Formula	= -183+24.33+23.32+20.82+18.59+16.6+14.82+13.23+11.81+10.55+43.22
Total PV	14.29