You are thinking of making an investment in a new plant. The plant will generate revenues of $1 million per year for as long as you maintain it. You expect that the maintenance costs will start at $50,000 per year and will increase 5% per year thereafter. Assume that all revenue and maintenance costs occur at the end of the year. You intend to run the plant as long as it continues to make a positive cash flow (as long as the cash generated by the plant exceeds the maintenance costs). The plant can be built and become operational immediately and the interest rate is 6% per year.

a. What is the present value of the revenues?

b. What is the present value of the maintenance costs?

c. If the plant costs $10 million to build, should you invest in the plant?