Your firm is considering an investment opportunity. Your firm has paid $50,000 f

Question

Your firm is considering an investment opportunity. Your firm has paid $50,000 for engineering, site surveys, and environmental impact studies. There were no environmental issues so the EPA approved the project. The hard construction costs will be $950,000 to build the project, and the present value of benefits will be $1,050,000. What is the NPV of the project?

Your company plans to spend $1,750,000 cash to build a plant that will produce benefits with a total present value of $3,000,000. Your company already owns the land on which it will build the plant. That land was purchased with cash several years ago for $300,000, which is the current book value of the land. The land could be sold for $1,275,000 after-tax today. What is the net present value of the proposed plant?

Opportunity costs are normally:

Incremental cash flows

The result of a company investing a non-cash asset in a capital budgeting project

Based on the market value (after tax) of a non-cash asset

All of the above

Explanation / Answer

1)

Net present value = Present value of cash inflows - Present value of cash out flows

= $1,050,000-$950,000

= $200,000

Hence, NPV of the building is $200,000.

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