Afactory costs $400,000. you forecast that it will produce cash inflows of $120,000 in year 1, $180,000 in year 2, and $300,000 in year 3. the discount rate is 12%. a. what is the value of the factory? (do not round intermediate calculations. round your answer to 2 decimal places.)

Value of factory =  $64,220

Explanation:

Here, for the given information,

To calculate value of factory we will calculate the Net Present Value.

Net Present Value = Present value of cash inflows - Present value of cash outflow.

Present value of cash outflow = Cost of factory today = $400,000

Discounting factor @ 12% for each year shall be

Year 1 =

Year 2 =

Year 3 =

Therefore, present value of cash inflows =

Net Present Value = Value of factory =  $464,220 - $400,000 = $64,220

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-lavira : )