Washington Mill Works is considering purchasing a large resawing band saw for $30,000. The saw has...

Washington Mill Works is considering purchasing a large resawing band saw for $30,000. The saw has a useful life estimated to be seven years, at which point it will have an estimated salvage value of $8,000. Annual income each year for the 7 years is $9000. Annual operating expenses are $3,000. Assume MARR = 7.5% and the planning horizon is 7 years. What is the present worth, annual worth, future worth, internal/external rate of return?

Please answer all parts. Include a cashflow diagram if possible.

Expert Solution

Given:
Minimum Acceptable rate of return	7.50%
Planning period in years	7
BandSaw Cost	$ 30,000
Salvage Value	$ 8,000
Depriciation amount	$ 3,143
Cashflow Diagram

Particulars \| YEARS	YEAR 0	YEAR 1	YEAR 2	YEAR 3	YEAR 4	YEAR 5	YEAR 6	YEAR 7
Revenue	$ -	$ 9,000	$ 9,000	$ 9,000	$ 9,000	$ 9,000	$ 9,000	$ 9,000
Operating Exp.	$ -	$ 3,000	$ 3,000	$ 3,000	$ 3,000	$ 3,000	$ 3,000	$ 3,000
BandSaw Cost	-$ 30,000	$ -	$ -	$ -	$ -	$ -	$ -	$ -
Depreciation	$ -	$ 3,143	$ 3,143	$ 3,143	$ 3,143	$ 3,143	$ 3,143	$ 3,143
Salavage Value	$ -	$ -	$ -	$ -	$ -	$ -	$ -	$ 8,000
Net Cash flow	-$ 30,000.00	$ 2,857.14	$ 2,857.14	$ 2,857.14	$ 2,857.14	$ 2,857.14	$ 2,857.14	$ 10,857.14

ANSWERS:
(1) Present Worth	-$ 10,044.81		Using NPV formula in excel = (discount rate, Cashflow)+investment = (7.5%, C19:I19)+(-30000)
(2) Annual Worth	-$ 1,896.46		Using formula = annual worth = PV* ( (i(1+i)^n) / ((1+i)^n -1) ) = -10044.81(( 0.075*(1.075^7))/ ((1.075^7)-1))
(3) Future Value	$ 25,106.61		Using FV formula in excel = (rate, nper, PMT) = (7.5%, 7, 2857.14)
(4) IRR	-1.40%		Using IRR formula = ( value, [Guess]) = (B19:I19)

jeff jeffy answered 2 years ago

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