A factory costs $300,000. You forecast that it will produce cash inflows of $90,000 in year 1, $150,000 in year 2, and $240,000 in year 3. The discount rate is 11%. a. What is the value of the factory? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Question

Business

Isabella Lowery

6 August, 12:21

A factory costs $300,000. You forecast that it will produce cash inflows of $90,000 in year 1, $150,000 in year 2, and $240,000 in year 3. The discount rate is 11%. a. What is the value of the factory? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

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Answers (1)

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Schultz · Answer 1

Value of the factory is $378,310.40

Explanation:

The value of factory can be determined by calculating the Net present value all cash flows associated with the factory. All the cash flows are discounted using a discount rate.

Years 1 2 3

Cash Flows $90,000 $150,000 $240,000

Discount Factor 11% 0.9009 0.8116 0.7312

Present Values $81,081.08 $121,743.4 $175,485.92

Net present value = $378,310.40