You are thinking of making an investment in a new factory. The factory will generate revenues of $1,980,000 per year for as long as you maintain it. You expect that the maintenance costs will start at $91,080 per year and will increase 5% per year thereafter. Assume that all revenue and maintenance costs occur at the end of the year. You intend to run the factory as long as it continues to make a positive cash flow? (as long as the cash generated by the plant exceeds the maintenance? costs). The factory can be built and become operational immediately and the interest rate is 6% per year.
a. What is the present value of the? revenues?
b. What is the present value of the maintenance? costs?
c. If the plant costs $19,800,000 to? build, should you invest in the? factory? What is the NPV?