1. (4 pts.) Suppose that we consider a 15-year planning horizon, starting now (time 0) and...
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1. (4 pts.) Suppose that we consider a 15-year planning horizon, starting now ("time 0") and ending 15 years from now ("time 15"). The capital cost of building a plant is $700,000, incurred at time 0. The operating cost is $35,000, incurred at the end of each of the 15 years. The total cost is $700,000 + 15 $35,000 = $1,225,000. If we divide this with 15, we get $81,666.67 per year. But this calculation ignores the time value of money. First, using a discount rate of 4%, determine and report the net present value (NPV) of the cash flow mentioned above. Next, determine and report a fixed dollar amount, incurred at the end of each of the 15 years, which has the same NPV as the actual cash flows. This fixed dollar amount is the annualized equivalent. Please report both the NPV and the fixed dollar amount as positive numbers. 1. (4 pts.) Suppose that we consider a 15-year planning horizon, starting now ("time 0") and ending 15 years from now ("time 15"). The capital cost of building a plant is $700,000, incurred at time 0. The operating cost is $35,000, incurred at the end of each of the 15 years. The total cost is $700,000 + 15 $35,000 = $1,225,000. If we divide this with 15, we get $81,666.67 per year. But this calculation ignores the time value of money. First, using a discount rate of 4%, determine and report the net present value (NPV) of the cash flow mentioned above. Next, determine and report a fixed dollar amount, incurred at the end of each of the 15 years, which has the same NPV as the actual cash flows. This fixed dollar amount is the annualized equivalent. Please report both the NPV and the fixed dollar amount as positive numbers.
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