The sch of technology, art, and design STAD is considering buying a package mach

Question

The sch of technology, art, and design STAD is considering buying a package machine for its Engineering Technology program. it is expected that this machine will generate a revenue for the school through several projects and partnership with local companies. it is estimated that the net profit in the first year will be $75000 and decreasing at the rate of $10000 for the next five years after that profit stays constant at $7000 until the end of its time life (10 years). if interest rate is 10%, determine the amount of money that the STAD can invest on this machine.
assume there is no salvage value of the machine.
b)determine the equivalent annual for the following cash flow:
year 0-------0
year 1-------$200,000
year 2-------$180,000
year 3-------$160,000
year 4-------$140,000
year 5-------$120,000
year 6-------$100,000
year 7-------$80,000
year8-------$60,000

Explanation / Answer

(a) Amount of money that STAD can invest on this machine = Present value of future benefits expected from this project. = 242,328

Thus it indicates the maximum amount that STAD can invest, but not the actual investment.

Question - 2

Equivalent annual cash flow = Total present value / PVIFA = =139910.43

Equivalent annual cash flow = 746,411.80 / 5.334926 =139910.43

PVIFA = Present value of Interest factor annuity = Total of DF ( Discounting factors column)

Comment for any further clarification ........ all the best

Year CF DF PV 1 75000 0.909091 68181.82 2 65000 0.826446 53719.01 3 55000 0.751315 41322.31 4 45000 0.683013 30735.61 5 35000 0.620921 21732.25 6 25000 0.564474 14111.85 7 7000 0.513158 3592.107 8 7000 0.466507 3265.552 9 7000 0.424098 2968.683 10 7000 0.385543 2698.803 Total Present value 242328

Related Questions

Navigate

• Browse (All)
• Browse T
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.