Calculating Net Present Value Using Inflation-Adjusted Discount Rate
Not what you're looking for?
Bing Enterprises, Inc., has been considering the purchase of a new manufacturing facility for $281,000. The facility is to be fully depreciated on a straight-line basis over seven years. It is expected to have no resale value after the seven years. Operating revenues from the facility are expected to be $116,000, in nominal terms, at the end of the first year. The revenues are expected to increase at the inflation rate of 3 percent. Production costs at the end of the first year will be $41,000, in nominal terms, and they are expected to increase at 4 percent per year. The real discount rate is 6 percent. The corporate tax rate is 21 percent. Calculate the NPV of the project. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
Purchase this Solution
Solution Summary
The solution is presented in excel format using cell references. If you change the given figures, excel would automatically calculate the solution.
Included with the excel sheet is a word document with notes explaining how to solve this problem.
Solution Preview
Notes:
1)
Annual Depreciation = $281,000 / 7
= $40,142.86
2)
Nominal revenue for year 2 = $116,000*(1+3%)
= $119,480
Nominal revenue ...
Education
- BA, Ain Shams University, Cairo Egypt
- MBA, California State University, Sacramento
Recent Feedback
- "ty i have more need help with"
- "ty i have jmore i need help with"
- "great help"
- "excellent help"
- "Very helpful and easy to understand."
Purchase this Solution
Free BrainMass Quizzes
Six Sigma for Process Improvement
A high level understanding of Six Sigma and what it is all about. This just gives you a glimpse of Six Sigma which entails more in-depth knowledge of processes and techniques.
Basic Social Media Concepts
The quiz will test your knowledge on basic social media concepts.
Accounting: Statement of Cash flows
This quiz tests your knowledge of the components of the statements of cash flows and the methods used to determine cash flows.
IPOs
This Quiz is compiled of questions that pertain to IPOs (Initial Public Offerings)
Marketing Management Philosophies Quiz
A test on how well a student understands the basic assumptions of marketers on buyers that will form a basis of their marketing strategies.