Question

please draw the time and put the step on how to compute in BA II plus calculator. thank you A five-year warehouse/factory project has an initial cost of \( \$\{A\} \) million with an expected renovation cost (outlay) of \( \$\{B\} \) million at the beginning of Year 3. Inflows of \( \$\{C\}

Answer 1

The Net Present Value (NPV) of the five-year warehouse/factory project is
`\( \$NPV_{\text{project}} \)` million.

Step-by-step explanation:

The Net Present Value (NPV) is a key metric in capital budgeting that helps assess the profitability of an investment. To compute the NPV for the given project using the BA II Plus calculator, follow these steps:

1. Enter Initial Investment: Input the initial cost (A) as a negative value in the calculator. For example, if (A = 100) million, enter (-100) as the cash flow in Year 0.

2. Enter Renovation Cost (Outlay): Enter the renovation cost (B) as a negative cash flow in Year 3. For instance, if (B = 50) million, input (-50) as the cash flow in Year 3.

3. Enter Inflows: Input the expected inflows (C) as positive cash flows in the respective years. For a five-year project, input the cash flows in Years 1 to 5.

4. Set Discount Rate: Set the discount rate using the appropriate interest rate for the project.

5. Compute NPV: Press the NPV button to calculate the Net Present Value
`(\(NPV_{\text{project}}\))`. The result represents the present value of the project's cash flows, accounting for the time value of money.

The final answer
`(\(NPV_{\text{project}}\))` indicates whether the project is expected to generate positive or negative value. A positive NPV suggests the project is financially viable, while a negative NPV may indicate that the project may not meet the required rate of return. This calculation helps in making informed investment decisions, considering the time value of money and the cost of capital.

In conclusion, the BA II Plus calculator simplifies the NPV calculation, providing a clear assessment of the project's financial viability by considering both costs and expected cash inflows over time.