Question

Managers at Acme Doohickey Co. are considering two projects.

• Project A: purchase and operation of a new machine, called the Starpunch, for manufacturing Acme doohickeys. The life of this project is three years.
• Project B: purchase and operation of a new machine, called the Sunspot, for manufacturing Acme doohickeys. The life of this project is two years.

The machines have identical capacity and produce the same doohickey. The company only has floor space in its machinists’ shop for one machine.

Assume that the appropriate discount rate in 7.9%, compounded annually. Calculate the Equivalent Annual Cash Flow (EACF) for Project A. Round to the dollar. Do not type the $ symbol. Also, if the EACF is negative, then include a minus sign in your answer.

Table: Expected Cash Flows for Projects A and B

Year	A revenue	A costs	A NCF	B revenue	B costs	B NCF
0		($29,000)			($23,000)
1	$20,000	($9,000)		$20,000	($7,000)
2	$20,000	($8,000)		$20,000	($6,000)
3	$20,000	($8,000)

Note: the table lists net revenue and net cost for each project and each year. But the table is incomplete; you will need to calculate the Net Cash Flows.

Answer 1

-Inderdhanush Page No DATE: Calculation Net cath flows for Project A Year Revenue Coste Net Cash flow (NCP) - -29000 29000 20,000 - 9000 (1000 20,000 - 80001 2000 20,000 - 8000 a 12000 2 3 Calculation of NCF For Year Revenue Coste 0 - 23000 20,000 -7000 2 20,000 – 6000 Project B NCA(S) 23000 13000 14000 need to for calculating EACH we Calculate Present worth PW NCEM (trgh Period. n Where NCF & n - r = PW = is Cash flows at No. of periods discount rate Present worth. बेटी बचाओ बेटी पढाओ

A Present worth of Project A pw = -20%) 0 + 1.0), logo + 42093– - (1.074) =-29000 + 10195 + 10307+9552 IPW $ 1054 Calculation of pw of Project B: Pw = -23000 +12048 +12025 $1073 104 altatione art One Now we can Calculate, EACH EACFA : - Present worth of CE PVA F7.9%, 3 years = $ 1054 2058/7 = 408.25 Round of to whole $ = 408 बेटी बचाओ बेटी पढाओ

-Inderdhanush Page No. DATE: EACFR - $ 1073 1.7857 - 600.88 Round of to Nearest whole $ = 601