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21 June, 14:24

A factory costs $300,000. You forecast that it will produce cash inflows of $90,000 in year 1, $150,000 in year 2, and $240,000 in year 3. The discount rate is 11%. a. What is the value of the factory? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

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  1. 21 June, 14:54
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    Value of the factory is $378,310.40

    Explanation:

    The value of factory can be determined by calculating the Net present value all cash flows associated with the factory. All the cash flows are discounted using a discount rate.

    Years 1 2 3

    Cash Flows $90,000 $150,000 $240,000

    Discount Factor 11% 0.9009 0.8116 0.7312

    Present Values $81,081.08 $121,743.4 $175,485.92

    Net present value = $378,310.40
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