A company is considering a project which requires $2.3 million in capital investment. The project can...

 

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A company is considering a project which requires $2.3 million in capital investment. The project can bring in an annual revenue of $550k/year next 19 years. The annual operation cost (e.g. labor and supplies) is $83k/year. Starting from year 14, the equipment will need major maintenance and this cost starts at $105k/year and increase by $105k each year until the end of the project life time (19 years). The equipment has a salvage value of $575k at the end of the project. Calculate the project's net future value at year 19 to find out whether it's worth investing. The interest rate is 9%. A company is considering a project which requires $2.3 million in capital investment. The project can bring in an annual revenue of $550k/year next 19 years. The annual operation cost (e.g. labor and supplies) is $83k/year. Starting from year 14, the equipment will need major maintenance and this cost starts at $105k/year and increase by $105k each year until the end of the project life time (19 years). The equipment has a salvage value of $575k at the end of the project. Calculate the project's net future value at year 19 to find out whether it's worth investing. The interest rate is 9%.

Answer rating: 100% (QA)

SOLUTION To calculate the net future value NFV of the project at year 19 we need to consider the cash flows generated by the project and discount them ... View the full answer