question archive 1) Your company can build the factory which will generate the following cash flows: Year Cash Flow 0 -1000 1 450 2 450 3 450 4 450 5 450 There will be no cash flows after year 5
1) Your company can build the factory which will generate the following cash flows: Year Cash Flow 0 -1000 1 450 2 450 3 450 4 450 5 450 There will be no cash flows after year 5
Subject:FinancePrice: Bought3
1) Your company can build the factory which will generate the following cash flows:
| Year | Cash Flow |
| 0 | -1000 |
| 1 | 450 |
| 2 | 450 |
| 3 | 450 |
| 4 | 450 |
| 5 | 450 |
There will be no cash flows after year 5. The appropriate annual interest rate is 4%.
a) What is the net present value of the factory?
b) Everything is as before, but suppose that in year 3, you can extend the factory by paying $450. All other cash flows are unaltered, that is, you will still receive $450 from the factory in that year, before you will invest into the extension. If implemented, this extension will increase the cash flows in years 4 and 5 to $750 (in each year) from $450 now. However, in order for the extension to be feasible, you need to buy the land for the extension now (year 0), as otherwise it will be sold to a competing enterprise. The current owner is asking $100 for the land. All prices are in millions of dollars. Should you accept the offer?
