For 11, i chosed 3, is it correct?
Net Present value = Present value of cash inflows – Present value of cash outflows
= (-65000+6000)+ (60,000-48000)*PVAF(7%, 6 years) + 1,000*PVF(7%, 6 years)
= - 59000 + 12000*4.767 +1000*0.666
= -$1,130
i.e. B
NPV = 159000*PVF(6%, 1 year) + 159000*PVF(6%, 2 years) + 112,000*PVF(6%, 3 years) + 112,000*PVF(6%, 4 years) – 89000 – 370000
= 159000*0.943 + 159000*0.890 + 112000*0.840 + 112000*0.792 – 89000 – 370000
= $15,791
i.e. A approx.
Extra cost of Machine B = 58,000-50,000 = $8000 | ||
Year | Incremental Cash flows | Cumulative Cash flows |
0 | -8000 | -8000 |
1 | -1000 | -9000 |
2 | 4000 | -5000 |
3 | 5000 | 0 |
4 | 5000 | 5000 |
5 | 3000 | 8000 |
6 | 3000 | 11000 |
7 | 2000 | 13000 |
Hence, payback period = 3 years | ||
i.e. B | ||
Payback period is the numbers of years taken to recover extra cost |
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