What is the npv of the air-conditioning system

Reference no: EM131477076

Question: You are the owner of a factory located in a hot tropical climate. The monthly production of the factory is $100,000 except during June-September when it falls to $80,000 due to the heat in the factory. In January 2003 you get an offer to install an air-conditioning system in your factory. The cost of the air-conditioning system is $150,000 and its expected life span is 10 years. If you install the air-conditioning system, the production in the summer months will equal the production in the winter months. However the cost of operating the system is $9,000 per month (only in the four months that you operate the system). You will also need to pay a maintenance fee of $5,000 annually in October. What is the NPV of the air-conditioning system if the interest rate 12% and corporate tax rate is 35% (the depreciation costs are recognized in December of each year).

Reference no: EM131477076

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