Question

# GDebi Enterprises is thinking of building a chemical processing plant to produce 4-hydroxy-3-methoxybenzaldehyde. The firm estimates...

GDebi Enterprises is thinking of building a chemical processing plant to produce 4-hydroxy-3-methoxybenzaldehyde. The firm estimates that the initial cost of the project will be \$13.7 million, and the plant will produce cash inflows of \$6.1 million for the next 5 years, after which time the project will terminate. In the 6th year however, the firm will need to clean up the site, which it estimates will cost it \$4.8 million. The discount rate the firm wants to use for the project is 12.8 percent. What is the NPV of this project? (Enter answer in millions.)

 Discount rate 12.800% Year 0 1 2 3 4 5 Cash flow stream -13.7 6.1 6.1 6.1 6.1 1.3 Discounting factor 1.000 1.128 1.272 1.435 1.619 1.826 Discounted cash flows project -13.700 5.408 4.794 4.250 3.768 0.712 NPV = Sum of discounted cash flows NPV Project = 5.23 Where Discounting factor = (1 + discount rate)^(Corresponding period in years) Discounted Cashflow= Cash flow stream/discounting factor

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