(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.
| 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 |
Question - 2
Equivalent annual cash flow = Total present value / PVIFA =
=139910.43
| Year |
CF |
DF |
PV |
| 1 |
200000 |
0.909091 |
181818.2 |
| 2 |
180000 |
0.826446 |
148760.3 |
| 3 |
160000 |
0.751315 |
120210.4 |
| 4 |
140000 |
0.683013 |
95621.88 |
| 5 |
120000 |
0.620921 |
74510.56 |
| 6 |
100000 |
0.564474 |
56447.39 |
| 7 |
80000 |
0.513158 |
41052.65 |
| 8 |
60000 |
0.466507 |
27990.44 |
|
Total |
5.334926 |
746411.8 |
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
