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Calculating the pv factor

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Reference no: EM132811967

Re Mini Case Capital Budgeting at Rio Negro, Inc (attached). It states that the vessel will be out of service for approximate 1 year during overhaul and that operating costs and depreciation will begin one year after the vessel is back in service. My questions are:

  1. If initial investment for overhaul occurs in Year 0, is it correct that Expenses & Depreciation would first occur in Year 2 and Exp/Dep for Year 1 are zero?
  2. In calculating the PV Factor, where the real rate is 7.16%: Year 0 = 1 and Year 2 would = 0.87, there would be no calculation for Year 1 since there is no Exp/Dep?
  3. The life of the overhauled vessel is 12 years. If there are no Exp/Dep for Year 1, then NPV would only cover 11 years - is this correct?

Reference no: EM132811967

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