Question

***Please DRAW CASH FLOW diagram***

A small commercial building contractor purchased a used crane 2 years ago for $60,000. Its operating cost was $2,500 in month one, $2,550 in month two, and amounts increasing by $50 per month through the end of year two (now). If the crane was sold for $48,000 now, what was its equivalent monthly cost at an interest rate of 1% per month?

Answer 1

Excel solution, formula solution given above
Time(,month)	Cash Flow	x PVF at 1%	=Present Value
0	-60000	1	(60,000.00)
1	-2500	0.99009901	(2,475.25)
2	-2550	0.980296049	(2,499.75)
3	-2600	0.970590148	(2,523.53)
4	-2650	0.960980344	(2,546.60)
5	-2700	0.951465688	(2,568.96)
6	-2750	0.942045235	(2,590.62)
7	-2800	0.932718055	(2,611.61)
8	-2850	0.923483222	(2,631.93)
9	-2900	0.914339824	(2,651.59)
10	-2950	0.905286955	(2,670.60)
11	-3000	0.896323718	(2,688.97)
12	-3050	0.887449225	(2,706.72)
13	-3100	0.878662599	(2,723.85)
14	-3150	0.86996297	(2,740.38)
15	-3200	0.861349475	(2,756.32)
16	-3250	0.852821262	(2,771.67)
17	-3300	0.844377487	(2,786.45)
18	-3350	0.836017314	(2,800.66)
19	-3400	0.827739915	(2,814.32)
20	-3450	0.81954447	(2,827.43)
21	-3500	0.811430169	(2,840.01)
22	-3550	0.803396207	(2,852.06)
23	-3600	0.795441789	(2,863.59)
24	-3650	0.787566127	(2,874.62)
24	48000	0.787566127	37,803.17
	NPV = sum		(87,014.30)
	Divide by PVAF, 1%,24		21.24339	=PV(0.01,24,-1)
	Equivalent monthly cost		(4,096.06)