(c) Company X plans to purchase a methanol plant for $1 million. The plant is expected to generate $200,000 in total annual revenue at the end of its first year of operations, after which revenues are expected to grow by 2% per year as operations become more efficient. If the opportunity cost of capital in the market is 5%, determine: i. the net present value of this investment if the plant is expected to remain open forever. ii. if this company should purchase this plant. Give a reason for your answer
(c) Company X plans to purchase a methanol plant for $1 million. The plant is expected to generate $200,000 in total annual revenue at the end of its first year of operations, after which revenues are expected to grow by 2% per year as operations become more efficient. If the opportunity cost of capital in the market is 5%, determine: i. the net present value of this investment if the plant is expected to remain open forever. ii. if this company should purchase this plant. Give a reason for your answer
Financial Management: Theory & Practice
16th Edition
ISBN:9781337909730
Author:Brigham
Publisher:Brigham
Chapter11: Cash Flow Estimation And Risk Analysis
Section: Chapter Questions
Problem 8P: The Rodriguez Company is considering an average-risk investment in a mineral water spring project...
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