Homework SourseA used tower crane has an initial cost of 250000 In Year 3 a
A used tower crane has an initial cost of $250,000. In Year 3 and Year 6, the equipment will require major maintenance, at a cost of $16,000 each time. The annual operating cost for the equipment is $24,000, and it has a salvage value of $33,000 in Year 9.
Find the net present value of the equipment if the cash flows are discounted annually at 7%.
Solution
Solution :
| Compuation of NPV of Equipment | ||||
| Particulars | Period | PV Factor | Amount | Present value |
| Initial Cost | 0 | 1 | -$250,000 | -$250,000 |
| Maintenance in year 3 | 3 | 0.816298 | -$16,000 | -$13,061 |
| Maintenance in year 6 | 6 | 0.666342 | -$16,000 | -$10,661 |
| Annual operating cost | 1-9 | 6.515232 | -$24,000 | -$156,366 |
| Salvage value | 9 | 0.543934 | $33,000 | $17,950 |
| NPV of Equipment | -$412,138 |
