Question

Amazing Manufacturing, Inc., has been considering the purchase of a new manufacturing facility for $590,000. The facility is to be fully depreciated on a straight-line basis over seven years. It is expected to have no resale value at that time. Operating revenues from the facility are expected to be $435,000, in nominal terms, at the end of the first year. The revenues are expected to increase at the inflation rate of 4 percent. Production costs at the end of the first year will be $280,000, in nominal terms, and they are expected to increase at 5 percent per year. The real discount rate is 7 percent. The corporate tax rate is 25 percent. |

Calculate the NPV of the project. |

Answer #1

**Formulae**

Mustang Enterprises, Inc., has been considering the purchase of
a new manufacturing facility for $280,000. The facility is to be
fully depreciated on a straight-line basis over seven years. It is
expected to have no resale value after the seven years. Operating
revenues from the facility are expected to be $115,000, in nominal
terms, at the end of the first year. The revenues are expected to
increase at the inflation rate of 2 percent. Production costs at
the end of...

Mustang Enterprises, Inc., has been considering the purchase of
a new manufacturing facility for $277,000. The facility is to be
fully depreciated on a straight-line basis over seven years. It is
expected to have no resale value after the seven years. Operating
revenues from the facility are expected to be $112,000, in nominal
terms, at the end of the first year. The revenues are expected to
increase at the inflation rate of 3 percent. Production costs at
the end of...

Mustang Enterprises, Inc., has been considering the purchase of
a new manufacturing facility for $277,000. The facility is to be
fully depreciated on a straight-line basis over seven years. It is
expected to have no resale value after the seven years. Operating
revenues from the facility are expected to be $112,000, in nominal
terms, at the end of the first year. The revenues are expected to
increase at the inflation rate of 3 percent. Production costs at
the end of...

Kemp Copy Co. is considering to purchase a new high speed copy
machine. The machine costs $500,000 and can be depreciated to zero
on a straight-line basis over its life of 5 years. Thus, annual
depreciation will be $100,000. The machine is expected to have
salvage value of $10,000. Revenues are expected to be $450,000 per
year (in real terms), and operating expenses are estimated 60
percent of revenues. Operating cash flows are expected to rise with
inflation, forecasted at...

The Biological Insect Control Corporation (BICC) has hired you
as a consultant to evaluate the NPV of its proposed toad ranch.
BICC plans to breed toads and sell them as ecologically desirable
insect control mechanisms. They anticipate that the business will
continue into perpetuity. Following the negligible start-up costs,
BICC expects the following nominal cash flows at the end of the
year:
Revenues
$
280,000
Labor costs
200,000
Other costs
70,000
The company will lease machinery for $105,000 per year....

You are considering an investment in a new factory that will
operate for 3 years. The initial investment will be 330722. The
nominal revenues at the end of Year 1 will be $250000. Revenues
will grow at a real rate of 1%. Inflation will be 2%. The nominal
costs at the end of Year 1 will be $30000. Costs will grow at a
nominal 4% rate. The investment will depreciated on a straight line
basis to zero over 3 years....

You are considering an investment in a new factory that will
operate for 3 years. The initial investment will be 356472. The
nominal revenues at the end of Year 1 will be $250000. Revenues
will grow at a real rate of 1%. Inflation will be 2%. The nominal
costs at the end of Year 1 will be $30000. Costs will grow at a
nominal 4% rate. The investment will depreciated on a straight line
basis to zero over 3 years....

You are considering an investment in a new factory that will
operate for 3 years. The initial investment will be 414217. The
nominal revenues at the end of Year 1 will be $250000. Revenues
will grow at a real rate of 1%. Inflation will be 2%. The nominal
costs at the end of Year 1 will be $30000. Costs will grow at a
nominal 4% rate. The investment will depreciated on a straight line
basis to zero over 3 years....

You are considering an investment in a new factory that will
operate for 3 years. The initial investment will be 193567. The
nominal revenues at the end of Year 1 will be $250000. Revenues
will grow at a real rate of 1%. Inflation will be 2%. The nominal
costs at the end of Year 1 will be $30000. Costs will grow at a
nominal 4% rate. The investment will depreciated on a straight line
basis to zero over 3 years....

The Biological Insect Control Corporation (BICC) has hired you
as a consultant to evaluate the NPV of its proposed toad ranch. The
company plans to breed toads and sell them as ecologically
desirable insect control mechanisms. They anticipate that the
business will continue into perpetuity. Following the negligible
start-up costs, the company expects the following nominal cash
flows at the end of the year:
Revenues
$
490,000
Labor costs
239,000
Other costs
88,000
The company will lease machinery...

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