Required 1 determine the net present value of the

Required:
1
Determine the net present value of the investment in the machine.
purchase 21000
savin 5000
0.12
period 5
purchase 72000
Rduced cost 16000 16000 16000 16000
Total cash flows
72000 16000 16000 16000 16000
Discount Factor
would reduce operating costs by $5,000 per year. At the end of the machine’s five-year useful life,
it will have zero scrap value. The company’s required rate of return is 12%.

16000
16000

Year Investment Cash Inflow
1 $57,000 $3,000 -$54,000
2 $7,000 $6,000
-$55,000 55000 12000
3 $12,000
-$43,000
43000
$13,000
4 $13,000 -$30,000 $30,000 $16,000
5 $16,000 -$14,000 $14,000 $14,000
6 $14,000 $0 $0 $12,000
7 $12,000 $12,000 -$12,000 $10,000
8 $10,000 $22,000 -$22,000 $9,000
9 $9,000 $31,000 -$31,000 $9,000
10 $9,000 $40,000 -$40,000
0
-1.00
The management of Unter Corporation, an architectural design firm, is considering an investment
with the following cash flows:

43000
$30,000
$14,000
$0
-$12,000
-$22,000
-$31,000
-$40,000
-$40,000

Revenues 220,000
Less operating expenses:
Commissions to amusement ho 60,000
Insurance 55,000
Depreciation 43,875
Maintenance 40,000 198,875
Net operating income 21,125
Total cost 390000
salvage value 39000
life 8 years
NOI 21,125
add: non cash deduction for deprecia 43,875
Annual net cash flow 65,000
payback period 6
The simple rate of return would be
Simple Rate of Return =
Annual net operating income
Initial investment
Simple Rate of Return = 5.4%

Purchase cost of the equipment 682,000
110,000
Life of the equipment 10 years
annual cost savings 110,000
less annual depreciation (270000/12 years
68200
Annual incremental net operating income 41,800
A piece of laborsaving equipment has just come onto the market that Mitsui Electronics, Ltd
reduce costs in one of its plants in Japan. Relevant data relating to the equipment follow:
Annual cost savings that will be
provided by the equipment

d., could use to