Capital Budgeting Homework

Progress sam

Score: $10/901/9$ answered

Question $2$

Management is trying to decide whether or not to build a new factory. They believe sales are increasing for their products. They have estimated revenues of $$85,000$ in year one, $570,000$ in years two through $8en.$ In $10$ years the factory is obsolete.

They estimate expenses annually to operate the factory after year $1$ would be $$35,000.$

The cost of the new factory is $$400,000.$ The payments required are $$100,000$ immediately with the remainder due through annual payments.

The company has hurdle rate of $6\%.$

Use these tables ${?}^5$ to solve the problems.

a$.$ What is the net present value of this new factory? $($flote that if your answer is negative then you need to place parentheses around it$)$

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b$.$ What would the net present value be if the factory only produces goods for $9$ yean?

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