Please answer 8.17. 8.13/14/16 is shown for information to solve 8.17. Can i ple

Question

Please answer 8.17. 8.13/14/16 is shown for information to solve 8.17. 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 S4 million will be needed every 3 years to update the plant. The plant is expected to start producing gears 2 years 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. Ans. CFo--$10000000, CF-CF2-0, CF$6000 000, CF CF CF CFs-CF-CF 8.13 CFi,-CF·14-a $3 000 000, CF,-CF,-CF12-CF1s -$10000000 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 336645.33

Explanation / Answer

13)

**supplemental investment is made only in 3 ,6 ,9,12,13 years (as it is said every 3 years from initial investment)

**Production will start from 3 years so cost will be incurred from 3 years= 2 million

*Revenue will be earned from 4 year - 5 million

14)NPV =present value of cash flow -Initial investment

           = 4.66341 (from above table ) - 10

           = - 5.33659 million

16) Present value of cash inflows @10% ,12years(starting from year 4) = 5.11923 *5 = $ 25.5962

    present value of cash outflow@10%,13 years (starting from year3) = 5.87054 *2 = $ 11.7411

net cash inflow= $ 13.8551

NPV = 13.8551 -13

       = $ .8551 Million approx

yes ,The project is economically viable as NPV is positive

17)Presen value of cash inflows $15%,12years = 3.56414 *5 = 17.82072

    present value of cash outflows @15%,13 years= 4.22166 *2 =8.44332

Net cash inflow = 17.82072- 8.44332

                       = $ 9.37740

NPV =9.3774 - 13

      = - 3.6226 million

no,since NPV is negative

year cash flow (millions) present value @ 10% (calculation for part 14) present value of cash flow 0 -10 (initial investment) 1 - 1 no cash flow .90909 0 2 no cash flow .82645 0 3 - (4supplemental + 2annual main.cost ) =   - 6 .75131 -4.50786 4 5 Revenue - 2 annual cost = 3 .68301 2.04903 5 3 .62092 1.86276 6 5 - (4 +2 ) = 5 -6 = - 1 .56447 -.56447 7 5- 2 = 3 .51316 1.53948 8 5 -2 =3 .46651 1.39953 9 5 - (4+2) = - 1 .42410 -.42410 10 5 - 2 = 3 .38554 1.15662 11 5 -2 =3 .35049 1.05147 12 5- (4+2) = -1 .31863 -.31863 13 5 -2 =3 .28966 .86898 14 5 -2 =3 .26333 .78999 15 5 - (4+ 2 ) = -1 .23939 -.23939 Total 4.66341

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