BUS5111: WA #2 Solution

Investment: 80,000

Cash inflows 14,000 for 7 years

5,000 at year #7

Discount rate is 7%

Partner:

Year 0 1 2 3 4

Project Discount Rate 0.07

Equipment purchase price ($80,000)

Cash inflow from new equipment $14,000 $14,000 $14,000 $14,000

Salvage value

Total cash in (out) $14,000 $14,000 $14,000 $14,000

Discount Factor (7%) 0.9346 0.8734 0.8163 0.7629

Present Value $13,084 $12,228 $11,428 $10,681

Net Present Value ($80,000)

Investment: 80,000

Cash inflows 14,000 for year 1

Cash inflows 16,000 for years 3, 4, and 5

Cash inflows 17,000 for years 5, 6, and 7

5,000 at year #7

Discount rate is 7%

Yours:

Year 0 1 2 3 4

Project Discount Rate 0.07

Equipment purchase price ($80,000)

Cash inflow from new equipment $14,000 $16,000 $16,000 $16,000

Salvage value

Total cash in (out) $14,000 $16,000 $16,000 $16,000

Discount Factor (7%) 0.9346 0.8734 0.8163 0.7629

Present Value $13,084 $13,975 $13,061 $12,206

Net Present Value ($80,000)

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