Data ExampleE Cost of equipment needed Working capital neede

Data ExampleE Cost of equipment needed Working capital needed Overhaul of equipment in four years Savage value of the equipment in five years Annual revenues and costs: $60,000 $100,000 $5,000 $10,000 Sales revenues Cost of Out-of-pocket operating costs $200,000 $125,000 $35,000 14% goods sold Discount rate Enter a formula into each of the cels marked wth a ? below Years Purchase of equipment Investment in working capital Sales Cost of Out-of-pocket operating costs Overhaul of equipment Salvage value of the equipment Working capital released Total cash flows (a) Discount factor (b) Present value of cash flows (a) x (b) Net present value goods sold 519 Use the formulas for the Time Value of Money Present value of $1-1/(1+r*n Present value of an annuity of $1-(1/r)(1-(1/(1+r*n)) where n is the number of years and r is the discount rate

Solution

Solution Years Now 1 2 3 4 5 Purchase of Equipment      -60,000.00 Investment in working capital -1,00,000.00 Sales    2,00,000.00    2,00,000.00    2,00,000.00    2,00,000.00    2,00,000.00 Cost of Goods Sold -1,25,000.00 -1,25,000.00 -1,25,000.00 -1,25,000.00 -1,25,000.00 Out-of Pocket operating expenses      -35,000.00      -35,000.00      -35,000.00      -35,000.00      -35,000.00 Overhaul of equipment        -5,000.00 Salvage value of Equipment        10,000.00 Working Capital Released    1,00,000.00 Total Cash Flow (a)        40,000.00        40,000.00        40,000.00        35,000.00    1,50,000.00 Discount Factor (b)                  1.00                  0.88                  0.77                  0.68                  0.59                  0.52 Present Value of Cash Flow(a)x(b) -1,60,000.00        35,080.00        30,760.00        27,000.00        20,720.00        77,850.00 Net Present Value        31,410.00