Part 2: Net Present Value 3. An Oklahoma-based company is interested in establishing a small ethanol refinery. Before they start, they want to determine the Net Present Value (NPV) to see if it's a worthwhile project. The ethanol refinery's cash inflows and outflows are listed in the table below. The time horizon is 3 years, with a discount rate of 5%. The initial investment is $100,000. a. First, complete the table by calculating the net cash flows for each of the three years. Cash Inflows Cash Outflows Net Cash Flow Year 1 Year 2 Year 3 $115,000 $150,000 $165,000 $173,000 $82,000 $59,500 b. Second, determine the NPV of the ethanol refinery. c. After calculating the NPV, should they build the ethanol plant? Briefly explain why.

Part 2: Net Present Value 3. An Oklahoma-based company is interested in establishing a small ethanol refinery. Before they start, they want to determine the Net Present Value (NPV) to see if it's a worthwhile project. The ethanol refinery's cash inflows and outflows are listed in the table below. The time horizon is 3 years, with a discount rate of 5%. The initial investment is $100,000. a. First, complete the table by calculating the net cash flows for each of the three years. Cash Inflows Cash Outflows Net Cash Flow Year 1 Year 2 Year 3 $115,000 $150,000 $165,000 $173,000 $82,000 $59,500 b. Second, determine the NPV of the ethanol refinery. c. After calculating the NPV, should they build the ethanol plant? Briefly explain why.

Managerial Accounting: The Cornerstone of Business Decision-Making

7th Edition

ISBN:9781337115773

Author:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Publisher:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Chapter12: Capital Investment Decisions

Section: Chapter Questions

Problem 21BEA

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