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Acme is planning construction of a new loading ramp for its single iron mill. The initial...

Acme is planning construction of a new loading ramp for its single iron mill. The initial cost of the investment is $1 million. Efficiencies from the new ramp are expected to reduce costs by $100,000 for the life of the plant which is currently estimated at another 30 years. The $100,000 cost savings is per year for the 30 year life of the project. When will this project break-even on a discounted cash basis if the discount rate is 10%?

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Answer #1

Let the time at which the project breaks even be x years
Hence,
At breakeven NPV=0

-1000000+100000/10%*(1-1/1.1^t)=0
=>t=log(1/(1-1000000*10%/100000))/log(1.1)
=>t=223.86 years

So, this project will not breakeven in the entire life of the project

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