Question

A factory costs $510,000. You forecast that it will produce cash inflows of $155,000 in year 1, $215,000 in year 2, and $370,000 in year 3. The discount rate is 11%.

What is the value of the factory? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Answer 1

Value of factory is $ 74,679.27

Value of factory is the net present value which is calculated as follows:
Year	Cash flow	Discount factor	Present value
a	b	c=1.11^-a	d=b*c
0	$ -5,10,000.00	1.000	$ -5,10,000.00
1	$   1,55,000.00	0.901	$   1,39,639.64
2	$   2,15,000.00	0.812	$   1,74,498.82
3	$   3,70,000.00	0.731	$   2,70,540.81
Net Present value			$       74,679.27