Please answer 8.19, the other questions are for supplemental information. Thank
ID: 2613400 • Letter: P
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Please answer 8.19, the other questions are for supplemental information. Thank you and my i please see the steps for 8.19?
8.13 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 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. CF = -$10 000 000, CF = CF = 0, CF , = $6 000 000, CF = CF , = CF, = CF, - CFO - CF II = CFB - CF4 = $3 000 000, CF, - CF, = 12 - CFLs - -$1 000 000 . 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 64533 8.15 Is the plant described in Problems 8. 13 and 8.14 an economically acceptable investment? Ans. No. because the NPV is negative.Explanation / Answer
Statement showing calculation of NPV Particulars Time PVF@5% Amount PV(Amount *PVF) Cash outflows - 1.000 (10,000,000.00) (10,000,000.00) PV of Cash outflows (10,000,000.00) Cash inflows 1.000 0.9524 - - Cash inflows 2.000 0.9070 - - Cash inflows 3.000 0.8638 (6,000,000.00) (5,183,025.59) Cash inflows 4.000 0.8227 3,000,000.00 2,468,107.42 Cash inflows 5.000 0.7835 3,000,000.00 2,350,578.50 Cash inflows 6.000 0.7462 (1,000,000.00) (746,215.40) Cash inflows 7.000 0.7107 3,000,000.00 2,132,043.99 Cash inflows 8.000 0.6768 3,000,000.00 2,030,518.09 Cash inflows 9.000 0.6446 (1,000,000.00) (644,608.92) Cash inflows 10.000 0.6139 3,000,000.00 1,841,739.76 Cash inflows 11.000 0.5847 3,000,000.00 1,754,037.87 Cash inflows 12.000 0.5568 (1,000,000.00) (556,837.42) Cash inflows 13.000 0.5303 3,000,000.00 1,590,964.05 Cash inflows 14.000 0.5051 3,000,000.00 1,515,203.86 Cash inflows 15.000 0.4810 (1,000,000.00) (481,017.10) PV of Cash inflows 8,071,489.12 NPV (1,928,510.88) No, Since NPV is negaitive
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