Please answer 8.16. The 8.13 and 8.14 have information to olve 8.16, Can i pleas

Question

Please answer 8.16. The 8.13 and 8.14 have information to olve 8.16, Can i please see the steps? Thank You!

A new plant to produce tractor gears requires an initial investment of $10 million. It is expected that a supplemental investment of $4 million will be needed every 3 years to update the plant. The plant is expected to start producing gears 2 ycars after the initial investment is made (at the start of the third year). Revenues of $5 million per year are expected to begin to flow at the start of the fourth year. Annual operating and maintenance costs are expected to be $2 million per year. The plant has a 15-year life. List the annual cash flows. 8.13 CFs-CFi- $3000000, CFo CF CF12-CFi-$1000 000 8.14 what is the NPV of the plant in Problem 8.13 if the interest rate is 10% per year, compounded annually? Ans. -$5 336 645.33

Explanation / Answer

Statement showing calculation of NPV Particulars Time PVF@10% Amount PV(Amount *PVF) Cash outflows                                -                                          1.000                     (13,000,000.00)                     (13,000,000.00) PV of Cash outflows                     (13,000,000.00) Cash inflows                         1.000                                      0.9091                                               -                                                 -   Cash inflows                         2.000                                      0.8264                                               -                                                 -   Cash inflows                         3.000                                      0.7513                       (2,000,000.00)                       (1,502,629.60) Cash inflows                         4.000                                      0.6830                         3,000,000.00                         2,049,040.37 Cash inflows                         5.000                                      0.6209                         3,000,000.00                         1,862,763.97 Cash inflows                         6.000                                      0.5645                         3,000,000.00                         1,693,421.79 Cash inflows                         7.000                                      0.5132                         3,000,000.00                         1,539,474.35 Cash inflows                         8.000                                      0.4665                         3,000,000.00                         1,399,522.14 Cash inflows                         9.000                                      0.4241                         3,000,000.00                         1,272,292.86 Cash inflows                       10.000                                      0.3855                         3,000,000.00                         1,156,629.87 Cash inflows                       11.000                                      0.3505                         3,000,000.00                         1,051,481.70 Cash inflows                       12.000                                      0.3186                         3,000,000.00                             955,892.45 Cash inflows                       13.000                                      0.2897                         3,000,000.00                             868,993.14 Cash inflows                       14.000                                      0.2633                         3,000,000.00                             789,993.76 Cash inflows                       15.000                                      0.2394                         3,000,000.00                             718,176.15 PV of Cash inflows                       13,855,052.94 NPV                             855,052.94 Yes, Since NPV is positive

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