Question

A company is considering a project which requires $2 million capital investment. The project can bring in an annual revenue of $170k for the next 25 years. The annual operation cost (e.g. labor and supplies) is $10k. Starting from year 20, the equipment will need major maintenance and this cost starts at $5k and increase by 5k each year until the end of the project life time (25 years). The equipment has a salvage value of $100k at the end of the project. Calculate the project’s net future value at year 25 to find out whether it’s worth investing. The interest rate is 6%.Please only fill in the number of your calculated result in the blank, e.g., if the result is $100k, fill in "100"; also round to the nearest integer.

Answer 1

Answer:

Instructions are listed below

Explanation:

Giving the following information:

A company is considering a project which requires a $2 million capital investment.

The project can bring in annual revenue of $170k for the next 25 years.

The annual operation cost is $10k.

Starting from year 20, the equipment will need major maintenance and this cost starts at $5k and increases by 5k each year until the end of the project lifetime (25 years). The equipment has a salvage value of $100k at the end of the project.

The interest rate is 6%

                   n

NFV= Io - ∑[Ct*(1+i)^n]

                   t-1

Io= initial investment

Ct= cashflow of the period

i= interest rate

n= number of period until the end

NFV= -2,010,000 + [170000* (1.06^25)] + [170000*(1.06^24)] + .... +

NFV= $2,067,453.755