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Calculate net present value of the new manufacturing plant

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Question - Currently due to the coronavirus health crisis there is a great demand for medical face masks. Smooth Equipment Company is considering purchase of a piece of land to build a manufacturing plant to produce medical face masks. The purchase price for the land is $100,000 and preparatory work will cost $34,200.

The manufacturing plant would be useable for 10 years. Company consultants recommend the new plant would cost the company $20,000 per year less to operate than the company's current production line. The current production plant also will last 10 more years. For a face mask manufacturing project, the company can borrow money at 4 per cent from the federal government.

Required - Calculate the net present value of the new manufacturing plant. Note: Use annuity present value of 8.111 for your calculations.

Reference no: EM132560346

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