2. A factory costs $300,000. You forecast that $ 300,000. You forecast that will produce cash...

Question

Question

Answer 1

Answer #1


1)	VALUE OF FACTORY CAN BE DETERMINED BY CALCULATING PRESENT VALUE IF FACTORY


	Year	Cash Flows	Present value factor@ 11%	Present Value at 11%	Remark(How present value factor is caluclated)
	0	-300000	1.000	-300000.0
	1	105000	0.901	94594.6	1/1.11=0.901
	2	165000	0.812	133917.7	0.901/1.11=0.812
	3	270000	0.731	197421.7	0.812/1.11=0.731

		Net Present Value		125934.0


	Value of factory = $125934

2)	Yes , factory is a good investment due to positive net present value


	Note: Negative value shows cash outflow/ cost and positive value shows cash inflow

Answer 2

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