Question

In: Economics

Please solve it within 20 minutes (updated) Solve the following A company is considering a machine...

Please solve it within 20 minutes (updated)

Solve the following
1. A company is considering a machine that will cost $(705 *1000) to buy. After seven years its salvage value will be $1000. $3000 cost of overhauling will be needed in the year 4th. maintenance costs will be $2500 per year. Draw the cash flow diagram.
2. Suppose you start a project and invest $5000 now, how much you obtain as a result after 5 years. Find the future value and the interest earned also draw cash flow? discount value i=5%

Expert Solution

a)

The cash flows associated with the purchase of the machine is shown in the following table

The cash flow diagram can be drawn using excel. In excel, go to insert, chart and select column.

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b)

The value of the investment at the end of 5 years is found as folllows

Future value = Present value ( 1 + interest rate ) ⁿ

Future value = $ 5000 ( 1 + 0.05 ) ⁵

Future value = $ 6381.4

The cash flows is shown in the following table

To insert the cash flow diagram in excel, choose insert, charts , select the data and choose column.

Rahul Sunny answered 2 years ago

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