With the information provided below. Answer the two questions stated at the end.

Question

With the information provided below. Answer the two questions stated at the end. I would much prefer explanations of how to do it rather than just answers please. More points can be awarded!

Petrolera Argentina, an oil refiner, is investing $100 million to increase the refining capacity at its facility in the Neuquen province by 50%, from 933 to a total of 1,400 cubic meters per day. The refinery produces liquefied petroleum gas. The expansion occurs at time zero and has an expected life of 15 years with a salvage value of $8 million. If a cubic meter generates $100 in profit, production occurs for 325 days per year and the MARR is 12% per year, answer the following:

Q1) Capital costs are generally defined as investments costs minus the salvage value accounted for at time zero (with the time value of money). What are the capital costs of this investment?

Q2) Assume a loan for $80 million was secured to pay for part of the expansion (the remaining funds come from the company's cash). If the loan is reapid in five equal total annual payments, how much is paid in year two with an annual interest rate of 8%?

Explanation / Answer

1.) $ 98.54 million

2.) $5.31 million in interest and $14.73 million in principal

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