Homework SourseA taconite processing facility has the following costs and r
A taconite processing facility has the following costs and revenues. Revenues are expected to stay the same at $120 per ton of ore. The facility can process 500,000 tons of ore each year for the next 8 years. However, operating costs are expected to be $35,000,000 in year one, and increasing 6% each year. What is the present value of the profit of the facility over 8 years? Use a 14% interest rate per year.
| Interest | |||||
| Gradient | |||||
| Year | Tons | Revenue | Costs | Profit (Revenue - Costs) | |
| 0 | |||||
| 1 | |||||
| 2 | |||||
| 3 | |||||
| 4 | |||||
| 5 | |||||
| 6 | |||||
| 7 | |||||
| 8 |
Solution
Ans:
| Year | Tons | Revenue | Costs | Profit (Revenue - Costs) | P.V factor (14%) | Present value |
| 1 | 500,000 | $60,000,000 | $35,000,000 | $25,000,000 | 0.877 | $21,929,825 |
| 2 | 500,000 | $60,000,000 | $37,100,000 | $22,900,000 | 0.769 | $17,620,806 |
| 3 | 500,000 | $60,000,000 | $39,326,000 | $20,674,000 | 0.675 | $13,954,361 |
| 4 | 500,000 | $60,000,000 | $41,685,560 | $18,314,440 | 0.592 | $10,843,619 |
| 5 | 500,000 | $60,000,000 | $44,186,694 | $15,813,306 | 0.519 | $8,212,936 |
| 6 | 500,000 | $60,000,000 | $46,837,895 | $13,162,105 | 0.456 | $5,996,478 |
| 7 | 500,000 | $60,000,000 | $49,648,169 | $10,351,831 | 0.400 | $4,136,978 |
| 8 | 500,000 | $60,000,000 | $52,627,059 | $7,372,941 | 0.351 | $2,584,651 |
