Question

Your company wants to purchase a 3D printer at a cost of $15,000. It estimates it can generate cash inflow in the year following purchase of $12,000. In the next a cash outflow of $4,000 will occur because the printer will require expensive maintenance and a software update. In the printer’s final year of its useful life it will generate cash flow of a $10,000. The machine will then be scrapped. Is the purchase financially justifiable if the appropriate discount rate is 8%? (Assume all cash flows occur at the end of the year)

Select one:

a. Yes, it generates a positive NPV of $620.

b. No, it generates a negative NPV of $850.

c. No, it generates a negative NPV of $1,244.

d. None of the above.

Your company operates a bulldozer that is several years old, and needs to be repaired frequently. You estimate that you can run it for only two more years, and that if you do, it will generate cash flows of $5,000 next year and $5,000 in the year after that. If you trade in the old bulldozer (forgoing these cashflows) and purchase a new one for $50,000 (the balance owing after the trade in allowance), you estimate the new one will generate cash flows in the next four years of $12,000, $14,000, $16,000 and $20,000, at which time the new bulldozer will be taken out of service and sold for $5,000. Is the purchase of the new bulldozer financially justified if the appropriate discount rate is 8%? (Assume all cash flows occur at the end of the year )

Select one:

a. Yes, it generates a positive NPV of $4,191.

b. Yes, it generates a positive NPV of $516.

c. No, it generates a negative NPV of $4,725.

d. No, it generates a negative NPV of $8,401.

e. None of the above.

You plan on saving $12,300 at the end of each of the next 20 years and investing your savings at an annual interest rate of 8%. At the end of year 20 you plan on retiring. You plan on leaving your savings in investments yielding an annual rate of 8% and withdrawing from savings a constant amount for the next 30 years commencing at the end of your first year of retirement. How large a withdrawal can you afford to make?

Select one:

a. $68,000

b. $27,500

c. $39,300

d. $50,000

e. None of the above

Answer 1

Based on the given data, pls find below answers and step wise workings and formulae;

Q) 3 D Printer: Answer is (a). Yes, it generates a positive NPV of $620

Q) Bulldozer : Answer is (b). Yes, it generates a positive NPV of $516.

Q) How large a withdrawal can you afford to make? Answer: d. $50,000

Computation of Net Present Value (NPV) based on the Discounted Cash flows; The Discounting factor is computed based on the formula: For year 0, the discounting factor is 1; For Year 1, it is computed as = Year 0 factor /(1+discounting factor%) ; Year 2 = Year 1 factor/(1+discounting factor %) and so on;

Next, the cashflows need to be multiplied with the respective years' discounting factor, to arrive at the discounting cash flows;

The total of all the discounted cash flows is equal to its respective Project NPV of the Cash Flows;