If the asset is operated for the entire three years

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Unformatted text preview: + Salvage Cash Flow V alue 464 = ($4 ,800.00) + $4 ,785.88 + $0.00 465 3-Year NPV = ($14 .12) 466 467 The asset has a negative NPV if it is kept for three years. But even though the asset will last three years, 468 it might be better to operate the asset for either one or two years, and then salvage it. 469 PV of PV of 470 2-Year NPV = Intial Cost + Operating + Salvage Cash Flow V alue 471 = ($4 ,800.00) + $3,4 71.07 + $1,363.64 472 2 -Year NPV = $34 .71 473 PV of PV of 474 1-Year NPV = Intial Cost + Operating + Salvage Cash Flow V alue 475 = ($4 ,800.00) + $1,818.18 + $2,727.27 476 1-Year NPV = ($254 .55) 455 K Chapter 10. Tool Kit for The Basics of Capital Budgeting: Evaluating Cash Flows In this file we use Excel to do most of the calculations explained in Chapter 10. First, we analyze Projects S and L, whose cash flows are shown immediately below in both tabular and a time line formats. Spreadsheet analyses can be set up vertically, in a table with columns, or horizontally, using time lines. For short problems, with just a few years, we generally use the time line format because rows can be added and we can set the problem up as a series of income statements. For long problems, it is often more convenient to use a tabular layout. N PV 5 NP V 1 2 3 4 U...
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This document was uploaded on 01/20/2014.

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