Costs: $1.5million to start project, $3million first year for building, $4million at end of first year for start up cost
Revenue: $3.5million in first year, +5% per year on previous years income until year 10, year 11,12,13 will be the same as year 10 (TOTAL 13 YEARS)
Salvage: for land at year 13 is $2million, for building at year 13 is $1.4million, for equipment is $500,000
Operating cost: is 40% of revenue each year.
For this company that is planning to expand one of it’s manufacturing facilities:
1) Make a cash flow diagram or table showing yearly dollar values.
2) What is the IRR of the investment (show all calculations)
3) If companies’ discount rate is 12% would this be a good investment?
4) What is the NPV of the project (show all calculations)
5) If the value of the land and buildings became zero at year 13, was this a good investment?