Question

the The Polynesian Urbanization Authority (PUA) buys new computuers for $100,000 in May. They estimate annual revenue will be from $50,000 to $400,000, but most likely about $300,000 over the next 5 years.

Operating and Maintenance costs will remain constant at $75,000/year. Their MARR-9%

Inflation is a constant 2.1%

1- What is the present work of PUA's ATCF, adjusted for inflations?

2- What is the EUAW(including inflation) of the present worth of the difference between PUAs expected BTCF and ATCF for the next 5 years?

Answer 1

Solution :

To compute the present work of the PUA we need to compute the present value of the work :

First, we need to compute the cash flow each year

Since inflation is given 2.1% and MARR (Minimum accepted rate of return is 9%) hence the discounted rate = 9% - 2.1% = 6.9%

The cash flow is :

Particulars	year1	2	3	4	5
Revenue	3,00,000	3,00,000	3,00,000	3,00,000	3,00,000
Operating cost	75,000	75,000	75,000	75,000	75,000
Gross profit/ Cash flow each year	2,25,000	2,25,000	2,25,000	2,25,000	2,25,000

The net present value or the present work will be :

Year	Cash flow	Discount rate @6.9%	Present value
0	-100000	1.00	-            1,00,000.00
1	225000	0.94	2,10,477.08
2	225000	0.88	1,96,891.56
3	225000	0.82	1,84,182.94
4	225000	0.77	1,72,294.61
5	225000	0.72	1,61,173.63
		Net present value	8,25,019.83