Question

Blue Spruce Industries is considering the purchase of new equipment costing $1,207,000 to replace existing equipment that will be sold for $188,800. The new equipment is expected to have a $203,000 salvage value at the end of its 5-year life. During the period of its use, the equipment will allow the company to produce and sell an additional 38,800 units annually at a sales price of $21 per unit. Those units will have a variable cost of $14 per unit. The company will also incur an additional $99,500 in annual fixed costs.

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Calculate the present value of each cash flow assuming an 6% discount rate. (For calculation purposes, use 4 decimal places as displayed in the factor table provided and round final answer to 0 decimal place, e.g. 58,971. Enter negative amounts using a negative sign preceding the number e.g. -58,971 or parentheses e.g. (58,971).)

Cash Flow		Present Value
Purchase of new equipment		$Enter a dollar amount Enter a dollar amount
Salvage of old equipment		Enter a dollar amountEnter a dollar amount
Sales revenue		Enter a dollar amountEnter a dollar amount
Variable costs		Enter a dollar amountEnter a dollar amount
Additional fixed costs		Enter a dollar amountEnter a dollar amount
Salvage of new equipment		Enter a dollar amountEnter a dollar amount

Answer 1

Calculate the present value of each cash flow assuming an 6% discount rate. (For calculation purposes, use 4 decimal places as displayed in the factor table provided and round final answer to 0 decimal place, e.g. 58,971. Enter negative amounts using a negative sign preceding the number e.g. -58,971 or parentheses e.g. (58,971).)

Cash Flow		Present Value
Purchase of new equipment		-1207000
Salvage of old equipment		188800
Sales revenue		814800*4.2124 = 3432264
Variable cost		543200*4.2124 = -2288176
Additional fixed costs		99500*4.2124 = -419134
Salvage of new equipment		203000*.7473 = 151702