,5 ered ut of NPW of Cash Flows Philipp Inc, a German company is considering the

Question

,5 ered ut of NPW of Cash Flows Philipp Inc, a German company is considering the following two equipment alternatives for their plant in Tennessee The cost information for those two machines (which are under consideration) is given in table below MachineX Machine Y Initial Cost $80,000 $66,000 $12,000 for the first 10 years &$9,000 per year Benefits/yr $8,000 for the next 10 years Life Salvage$30,000 Value MARR a. The NPW of machine X is? for 20 years 20 years $20,000 10.4% Answer format: $ xxxx

Explanation / Answer

(a)

PV factor for year N = (1.104)-N

In year 20, Annual Cash flow will increase by $30,000 (Salvage value).

NPW for Machine X is computed as follows.

NPW = $14598

Year Cash flow ($) PV Factor @10.4% Discounted Cash Flow ($) (A) (B) (A) x (B) 0 -80,000 1.0000 -80,000 1 12,000 0.9058 10,870 2 12,000 0.8205 9,846 3 12,000 0.7432 8,918 4 12,000 0.6732 8,078 5 12,000 0.6098 7,317 6 12,000 0.5523 6,628 7 12,000 0.5003 6,003 8 12,000 0.4532 5,438 9 12,000 0.4105 4,926 10 12,000 0.3718 4,462 11 8,000 0.3368 2,694 12 8,000 0.3051 2,440 13 8,000 0.2763 2,211 14 8,000 0.2503 2,002 15 8,000 0.2267 1,814 16 8,000 0.2054 1,643 17 8,000 0.1860 1,488 18 8,000 0.1685 1,348 19 8,000 0.1526 1,221 20 38,000 0.1382 5,253 NPW ($) = 14,598

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