Question

Sanders Enterprises, Inc., has been considering the purchase of a new manufacturing facility for $278,000. The facility is to be fully depreciated on a straight-line basis over seven years. It is expected to have no resale value after the seven years. Operating revenues from the facility are expected to be $113,000, in nominal terms, at the end of the first year. The revenues are expected to increase at the inflation rate of 5 percent. Production costs at the end of the first year will be $38,000, in nominal terms, and they are expected to increase at 6 percent per year. The real discount rate is 8 percent. The corporate tax rate is 35 percent.

   

Calculate the NPV of the project. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

   

NPV?

Answer 1

SEE IMAGE

ANY DOUBTS, FEEL FREE TO ASK

SALES FIRST YEAR = 113000

SECOND YEAR = 113000 X (1 +0.05) = 118650

THIRD YEAR = 118650 X (1+0.05) =124582.5

SAME WAY FOR OPERATING COSTS