The Sisneros Company is considering building a chili processing plant in Hatch, New Mexico. The plant is expected to produce 50,000 pounds of processed chili peppers each year for the next 10 years. During the first year, Sisneros expects to sell the processed peppers for $2 per pound. The price is expected to increase at a 6 percent rate per year over the 10-year economic life of the plant. The costs of operating the plant, exclusive of
The plant will cost $100,000 to build. It will be depreciated as a 7-year MACRS asset. The estimated salvage at the end of 10 years is zero. The firm's marginal tax rate is 40 percent.
Use Table II, Table IV, and Table 9A-3 to answer the questions below.
- Calculate the net investment required to build the plant. Round your answers to the nearest dollar.
$ - Calculate the annual net cash flows from the project. Round your answers to the nearest dollar.
Year NCF 1 $ 2 $ 3 $ 4 $ 5 $ 6 $ 7 $ 8 $ 9 $ 10 $ -
Calculate the
net present value if Sisneros uses a 28 percent cost of capital to evaluate projects of this type. Round your answer to the nearest dollar.
$Should the plant be built?
the plant because NPV 0
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