Problem 8.24 only

CHAP. 8] 75 NPV, ROR, PRI ROR, PBP, BCR Supplementary Problems 8.13 8.14 8.15 8.16 8.17 8.18 A new plant to produce tractor gears requires an initial investment of SIO million. It is expected that a supplemental investment of S4 million will be needed every 3 years to update the plant. The plant is expected to start producing gears 2 years after the initial investment is made at the start of the third year). Revenues of $5 million per year are expected to begin to flow at the start of the fourth year. Annual operating and maintenance costs are expected to be million per year. The plant has a 15-year life. List the annual cash flows. Ans CF-510 000 000, CF, - CF, -0. CF --S6000000. CF. - CF - CF - CF - CF.-C.. CF, CF - 53 000 000, CF.-CF-CF-CF-51000000 What is the NPV of the plant in Problem 8.13 7 the interest rate is 10% per year, compounded annually? Ans. -SS 336 64533 Is the plant described in Problems 8.13 and 8.14 an economically acceptable investment? Ans. No, because the NPV is negative. A different plant from the one described in Problem 8.13 can be built for an initial investment of $13 million and no supplemental investments. All other data are the same as in Problems 8.13 and 8.14. (a) Compute the net present value. (b) Is this plant an economically acceptable investment? Ans. (a) +$855 208.47; (b) yes Is the investment described in Problem 8.16 still economically acceptable the interest rate is 15% per year, compounded annually? Use the net present value method Ans. No: NPV --$3624 23852