Question
In: Finance
A firm purchased some equipment at a price of $150,000. The equipment resulted in an annual...
A firm purchased some equipment at a price of $150,000. The equipment resulted in an annual net savings of $6,000 per year during the 10 years it was used. At the end of 10 years, the equipment was sold for $110,000. Draw a cash-flow diagram that depicts the situation. Assuming an annual effective interest rate of 6.5%, what was the equivalent cost to the company of this transaction on the purchase date?
Solutions
Expert Solution
| rate | 6.5000% | ||
| Cash flows | Year | Discounted CF= cash flows/(1+rate)^year | Cumulative cash flow |
| (150,000.00) | 0 | (150,000.00) | (150,000.00) |
| 6,000.000 | 1 | 5,633.80 | (144,366.20) |
| 6,000.000 | 2 | 5,289.96 | (139,076.24) |
| 6,000.000 | 3 | 4,967.09 | (134,109.15) |
| 6,000.000 | 4 | 4,663.94 | (129,445.21) |
| 6,000.000 | 5 | 4,379.29 | (125,065.92) |
| 6,000.000 | 6 | 4,112.00 | (120,953.92) |
| 6,000.000 | 7 | 3,861.04 | (117,092.88) |
| 6,000.000 | 8 | 3,625.39 | (113,467.49) |
| 6,000.000 | 9 | 3,404.12 | (110,063.37) |
| 6,000.000 | 10 | 3,196.36 | (106,867.02) |
| 110,000.000 | 10 | 58,599.86 | (48,267.15) |
equivalent cost to the company of this transaction on the purchase date = 48,267.15
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Inventory
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Accum. depreciation
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150,000
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