Question

Westbrook Corp is considering purchasing a triple-double producing machine to help with overall company production. The machine costs $175,000 and is expected to have an eight-year useful life with a salvage value of $16,000. Westbrook also expects to pay $15,000 to update the machine after 3 years of use. The machine is expected to generate $30,000 of net cash flow each year. Westbrook desires to earn a rate of return of 7%. What is the present value of the yearly net cash inflows? 156,899

Answer 1

E 1 2. 3 4 5 А B с D F G Year Costs Revenue Salvage Net Pv factor PV 0 $(175,000.00) $(175,000.00) 1 $(175,000.00) 1 $30,000.00 $ 30,000.00 0.934579439 $ 28,037.38 2. $30,000.00 $ 30,000.00 0.873438728 $ 26,203.16 3 $ (15,000.00) $30,000.00 $ 15,000.00 0.816297877 $ 12,244.47 $30,000.00 $ 30,000.00 0.762895212 $ 22,886.86 $30,000.00 $ 30,000.00 0.712986179 $ 21,389.59 6 $30,000.00 $ 30,000.00 0.666342224 $ 19,990.27 7 $30,000.00 $ 30,000.00 0.622749742 $ 18,682.49 $30,000.00 $ 16,000.00 $ 46,000.00 0.582009105 $ 26,772.42 Present value $ 1,206.63 6 4 5 7 8 9 10 11 8

Calc:

E 1 1 A B Year Costs 20 |-175000 3 1 4. 2 5 3 -15000 6 4 75 8 6 97 с D F G Revenue Salvage Net Pv factor PV =SUM(B2:D2) =F2 *E2 30000 =SUM(B3:D3) =F2/1.07 =F3*E3 30000 =SUM(B4:04) =F3/1.07 =F4E4 30000 =SUM(B5:05) =F4/1.07 =F5*E5 30000 =SUM(B6:06) =F5/1.07 =F6*E6 30000 =SUM(B7:07) =F6/1.07 =F7*E7 30000 =SUM(B8:08) =F7/1.07 =F8*E8 30000 =SUM(B9:09) =F8/1.07 =F9*E9 30000 16000 =SUM(B10:010) |=F9/1.07 =F10*E10 Present value =SUM(G2:610) 10 8 11