Kerri Bates is reviewing his companys investment in a cement plant. The company paid $15,000,000...
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Kerri Bates is reviewing his companys investment in a cement plant. The company paid $15,000,000 five years ago to acquire the plant. Now top management is considering an opportunity to sell it. The president wants to know whether the plant has met original expectations before he decides its fate. The companys discount rate for present value computations is 8 percent.
Year 1
Year 2
Year 3
Year 4
Year 5
Expected
3,300,000
4,920,000
4,560,000
4,980,000
4,200,000
Actual
2,700,000
3,060,000
4,920,000
3,900,000
3,600,000
a. Compute the net present value of the expected cash flows as of the beginning of the investment.(Negative amount should be indicated by a minus sign. Round intermediate computation of dollar amounts to the nearest whole dollars.)
b. Compute the net present value of the actual cash flows as of the beginning of the investment.(Negative amount should be indicated by a minus sign. Round intermediate computation of dollar amounts to the nearest whole dollars.)
c. What do you conclude from this post audit?
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