Amazing Manufacturing, Inc., has been considering the purchase of a manufacturing facility for $560,000. The facility is to be fully depreciated on a straight- line basis over seven years. It is expected to have no resale value at that time. Operating revenues from the facility are expected to be $420,000, 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 $265,000, 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 22 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

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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Amazing Manufacturing, Inc., has been considering the purchase of a new
manufacturing facility for $560,000. The facility is to be fully depreciated on a straight-
line basis over seven years. It is expected to have no resale value at that time. Operating
revenues from the facility are expected to be $420,000, 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 $265,000, 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 22 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
Transcribed Image Text:Amazing Manufacturing, Inc., has been considering the purchase of a new manufacturing facility for $560,000. The facility is to be fully depreciated on a straight- line basis over seven years. It is expected to have no resale value at that time. Operating revenues from the facility are expected to be $420,000, 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 $265,000, 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 22 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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