Add a cash flow diagram to it and a detailed solution and show the formula you u

Question

Add a cash flow diagram to it and a detailed solution and show the formula you used

An engineer is considering the purchase of a copy machine for his/her consulting office. The copy machine will cost $2,000 and have a resale value of $400 at the end of its 5-year life. Having the machine in the office will reduce copy costs by $1,000 a year. Copy machine maintenance will be $500 for the first year and will increase by $100 each year. Does the machine have any future worth if the in­terest rate is 6%?

Explanation / Answer

FIR ST WE WILL CALCULATE THE TOTAL SAVINGS AND THEN WE WILL CONVERT IT TO PV

YEAR 1 1000 - 500 = 500. YEAR 2 1000 - 600 = 400. YEAR 3 1000 - 700 = 300. YEAR 4 1000 - 800 = 200.

YEAR 5 1000 - 900 = 100 ALSO 400 FOR RESALE.

NOW WE WILL CONVERT THE SAVINGS TO PRESENT VALUE BY PV FACTOR @ 6% YEAR WISE RESPECTIVELY.

500 * 0.9434 = 471.70. 400 * 0.8900 = 356. 300 * 0.8396 = 251.90. 200 * 0.7921 = 158.42 500 * 0.7473 = 373.65

ADDING UP ALL THE BOLD ITEMS WILL GIVE THE TOTAL SAVINGS AT PV

= 471.70 + 356 + 251.90 + 158.42 + 373.65 = 1611.67 - 2000 = -388.33

THE NET WORTH OF MACHINE IN FUTURE IS NEGATIVE OR SAY NIL.

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