A factory costs $1,000,000 to build. You determine that it will produce cash for 10 years with an inflow of  $230,000  a  year  for  the  first  five  years  and  an  inflow  of  $170,000  a  year  for  last  five  years.  Suppose the interest rate is 10 percent.

Problem #1

What is the factory worth today? Should you build the factory?

Problem #2

After five years, you are offered $600,000 to sell the factory. Should you sell it? [Hint: You must compare $600,000 with the factory's true value after five years.]

Answer rating: 100% (QA)

Problem 1 The factory is worth 93978720 today The present value of the cash flows from the factory c... View the full answer