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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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hyderali230

Answer:

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