Your family owns an oil refinery in North Dakota that generates $45 million in revenues per year and will do so forever. The operating cost of the refinery at the end of this year will be $20 million. However, because of the age and required maintenance of the refinery, you expect the operating costs to grow at 7% per year forever. Assume that all revenue and operating costs occur at the end of each year. The discount rate is 12% per year. What is the present value of the refinery's cash flows under the assumption that you will operate it forever? (Note: Your answer could be a negative number and should be expressed in units of millions of dollars: $40,000,000 should be entered as 40, and -$40,000,000 as -40.)

Answer rating: 100% (QA)

To calculate the present value of the refinerys cash flows we need to use the perpetuity formula P... View the full answer