Bing Enterprises, Inc., has been considering the purchase of a new manufacturing facility for $275,000. The facility is to be fully depreciated on a straight-line basis over seven years. It is expected to have no resale value after the seven years. Operating revenues from the facility are expected to be $110,000, in nominal terms, at the end of the first year. The revenues are expected to increase at the inflation rate of 5 percent. Production costs at the end of the first year will be $35,000, in nominal terms, and they are expected to increase at 6 percent per year. The real discount rate is 8 percent. The corporate tax rate is 25 percent. Calculate the NPV of the project. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) NPV
Bing Enterprises, Inc., has been considering the purchase of a new manufacturing facility for $275,000. The facility is to be fully depreciated on a straight-line basis over seven years. It is expected to have no resale value after the seven years. Operating revenues from the facility are expected to be $110,000, in nominal terms, at the end of the first year. The revenues are expected to increase at the inflation rate of 5 percent. Production costs at the end of the first year will be $35,000, in nominal terms, and they are expected to increase at 6 percent per year. The real discount rate is 8 percent. The corporate tax rate is 25 percent. Calculate the NPV of the project. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) NPV
Chapter9: Capital Budgeting And Cash Flow Analysis
Section: Chapter Questions
Problem 12P
Related questions
Question
![Bing Enterprises, Inc., has been considering the purchase of a new manufacturing facility
for $275,000. The facility is to be fully depreciated on a straight-line basis over seven
years. It is expected to have no resale value after the seven years. Operating revenues
from the facility are expected to be $110,000, in nominal terms, at the end of the first
year. The revenues are expected to increase at the inflation rate of 5 percent. Production
costs at the end of the first year will be $35,000, in nominal terms, and they are
expected to increase at 6 percent per year. The real discount rate is 8 percent. The
corporate tax rate is 25 percent.
Calculate the NPV of the project. (Do not round intermediate calculations and round
your answer to 2 decimal places, e.g., 32.16.)
NPV](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fc3077f2c-79d5-41bd-87ef-95a14940e182%2F46f80489-caa3-4ccf-a210-679c9be5410f%2Fzpp8bk_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Bing Enterprises, Inc., has been considering the purchase of a new manufacturing facility
for $275,000. The facility is to be fully depreciated on a straight-line basis over seven
years. It is expected to have no resale value after the seven years. Operating revenues
from the facility are expected to be $110,000, in nominal terms, at the end of the first
year. The revenues are expected to increase at the inflation rate of 5 percent. Production
costs at the end of the first year will be $35,000, in nominal terms, and they are
expected to increase at 6 percent per year. The real discount rate is 8 percent. The
corporate tax rate is 25 percent.
Calculate the NPV of the project. (Do not round intermediate calculations and round
your answer to 2 decimal places, e.g., 32.16.)
NPV
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