Question

A factory costs $460,000. You forecast that it will produce cash inflows of $150,000 in year 1, $210,000 in year 2, and $360,000 in
year 3. The discount rate is 12%.
a. What is the value of the factory? (Do not round Intermediate calculations, Round your answer to 2 decimal places.)
Value of the factory
b. Is the factory a good investment?
Yes
O No

Answer 1

Answer:

Explanation:

a.Present value of inflows=cash inflow*Present value of discounting factor(rate%,time period)

=150,000/1.12+210,000/1.12^2+360,000/1.12^3

=557580.18

NPV=Present value of inflows-Present value of outflows                  

=557580.18-460,000

=$97580.18(Approx)=Value of factory

b.Hence since net present value is positive;factory is a good investment

(Yes)