Question

Blue Spruce Industries is considering the purchase of new equipment costing $1,248,000 to replace existing equipment that will be sold for $181,600. The new equipment is expected to have a $210,000 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 38,400 units annually at a sales price of $29 per unit. Those units will have a variable cost of $14 per unit. The company will also incur an additional $91,500 in annual fixed costs.

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Calculate the present value of each cash flow assuming an 8% 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
Salvage of old equipment
Sales revenue
Variable costs
Additional fixed costs
Salvage of new equipment

Answer 1

Cash Flow	Amount	Timing	Pv Factor	Present Value
Purchase of new equipment	1,248,000.00	Year 0	1.0000	1,248,000.00
Salvage of old equipment	181,600.00	Year 0	1.0000	181,600.00
Sales Revenue	1,113,600.00	Years 1-5	3.9927	4,446,270.72
Variable cost	537,600.00	Years 1-5	3.9927	2,146,475.52
Additional Fixed cost	91,500.00	Years 1-5	3.9927	365,332.05
Salvage of New Equipment	210,000.00	Year 5	0.6806	142,926.00