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 $95,000 in year one, $85,000 in years two through ten. In 10 years the factory is obsolete.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 $350,000. The payments required are $110,000 immediately with the remainder due at completion.
The company has hurdle rate of 8%.
Use these tables to solve the problems.
- What is the net present value of this new factory?
$ - What would the net present value be if the factory only produces goods for 9 years?