The manufacture of folic acid is a competitive business. A new plant costs $100,000 and lasts for three years. The cash flow from the plant is as follows: year 1: +$43,300; year 2: +$$43,300; and year 3: +$58,300. (Assume no taxes.)If the discount rate is 20 percent, what is the value of the plant at the end of year 2? Round to the nearest $100.
A)$48,600
B)$38,520
C)-$51,600
D)Zero

Question

Quizplus · Accepted Answer

To find the value of the plant at the end of year 2, we need to calculate the present value of the cash flow for year 3, discounted back two years at a 20% rate. The cash flow in year 3 is $58,300. Using the formula for present value, PV = FV / (1 + r)^n, where FV is the future value, r is the discount rate, and n is the number of periods:PV = $58,300 / (1 + 0.20)^1 = $58,300 / 1.20 = $48,583.33Rounded to the nearest $100, the value is $48,600.

The Manufacture of Folic Acid Is a Competitive Business $$43,300; and Year 3: +$58,300