A manufacturing firm is contemplating replacing its current factory with a new, more modern plant. If it does not make the investment, it expects its revenues to be $3,000,000 and its costs to be $1,800,000 in each of the next 6 years. Revenues and costs are realized at the end of each year.

If it does acquire the new factory, the firm expects that its revenues will remain at $3,000,000 in each of the next 6 years. Acquiring the new factory would require an immediate investment of $5,000,000 (at the beginning of year 1), but would reduce the firm’s costs by $640,000 in each of the next 6 years. The prevailing interest rate is 5%.

Would you advise that the firm invest in the new factory? Explain fully.

Answer rating: 100% (QA)

If doesnt make investment If make investment difference in net ... View the full answer