A company is considering a project which requires $2 million capital investment.

Question

A company is considering a project which requires $2 million capital investment. The project can bring in an annual revenue of $170k for the next 25 years. The annual operation cost (e.g. labor and supplies) is $10k. Starting from year 20, the equipment will need major maintenance and this cost starts at $5k and increase by 5k each year until the end of the project life time (25 years). The equipment has a salvage value of $100k at the end of the project. Calculate the project's net future value at year 25 to find out whether it's worth investing. The interest rate is 6% Please only fill in the number of your calculated result in the blank, e.g., if the result is $100k, fill in "100"; also round to the nearest integer. 2 9 worth -9e vsul sta9. lahal 9, if t

Explanation / Answer

NPV formula: =L6+NPV(0.06,L7:L31)
Where L6 is the year zero total cash flow and L7 to L31 are the each year total cash flows.
0.06 is the rate i.e. 6%

Future value is 178.43K hence answer is 178

Year Capital inv Revenue Op Cost Maintainence Salvage Total 0 $ -2,000.00 $            -   $ -2,000.00 1 $ 170.00 $   -10.00 $      160.00 2 $ 170.00 $   -10.00 $      160.00 3 $ 170.00 $   -10.00 $      160.00 4 $ 170.00 $   -10.00 $      160.00 5 $ 170.00 $   -10.00 $      160.00 6 $ 170.00 $   -10.00 $      160.00 7 $ 170.00 $   -10.00 $      160.00 8 $ 170.00 $   -10.00 $      160.00 9 $ 170.00 $   -10.00 $      160.00 10 $ 170.00 $   -10.00 $      160.00 11 $ 170.00 $   -10.00 $      160.00 12 $ 170.00 $   -10.00 $      160.00 13 $ 170.00 $   -10.00 $      160.00 14 $ 170.00 $   -10.00 $      160.00 15 $ 170.00 $   -10.00 $      160.00 16 $ 170.00 $   -10.00 $      160.00 17 $ 170.00 $   -10.00 $      160.00 18 $ 170.00 $   -10.00 $      160.00 19 $ 170.00 $   -10.00 $      160.00 20 $ 170.00 $   -10.00 $     -5.00 $      155.00 21 $ 170.00 $   -10.00 $   -10.00 $      150.00 22 $ 170.00 $   -10.00 $   -15.00 $      145.00 23 $ 170.00 $   -10.00 $   -20.00 $      140.00 24 $ 170.00 $   -10.00 $   -25.00 $      135.00 25 $ 170.00 $   -10.00 $   -30.00 $ 100.00 $      230.00 NPV $         41.57 Future value $      178.43 (41.57*(1.06^25))

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