A company is analyzing a 15-year project which requires an initial investment of $300 million. From the 1st year to the 10th year, this project requires an annual expense at the end of each year. The 1st-year expense will be $10 million, and the expense will decrease by 5% each year. From the 6th year to the 15th year, the project will generate an arithmetically increasing annual revenue at the end of each year: $10 million at the end of the 6th year, $20 million at the end of the 7th year, . . ., and $100 million at the end of the last year. Assume that the annual interest rate is 3% compounded annually a) Draw a cash-flow diagram for this project from the company’s perspective. b) Find the present value of this project c) The company considers a 10-year project which requires an initial investment of $200 million, no other expenses, and a consistent annual revenue at the end of each year from the 1st year to the last year. If this project has the same value with the above project, what will be the annual revenue of this project?
A company is analyzing a 15-year project which requires an initial investment of $300 million.
From the 1st year to the 10th year, this project requires an annual expense at the end of each year.
The 1st-year expense will be $10 million, and the expense will decrease by 5% each year. From the
6th year to the 15th year, the project will generate an arithmetically increasing annual revenue at the
end of each year: $10 million at the end of the 6th year, $20 million at the end of the 7th year, . . .,
and $100 million at the end of the last year. Assume that the annual interest rate is 3% compounded
annually
a) Draw a cash-flow diagram for this project from the company’s perspective.
b) Find the present value of this project
c) The company considers a 10-year project which requires an initial investment of $200
million, no other expenses, and a consistent annual revenue at the end of each year from the 1st
year to the last year. If this project has the same value with the above project, what will be the
annual revenue of this project?
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