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  • Net Present Value Calculation

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    akothcathrine062
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    The document compares the costs and cash flows of old and new backhoes. The old backhoe requires a $55,000 overhaul but generates $30,425 in annual cash flow over 8 remaining years. The new backhoe costs $158,000 initially but generates $43,900 in annual cash flow over 8 years. Calculating the net present value at an 8% discount rate, the old backhoe has a NPV of $133,095.55 while the new backhoe has a higher NPV of $626,573.31, indicating the new backhoe is the better investment.

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    NPV Calculation in excel;

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    Net Present Value calculation

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    The document compares the costs and cash flows of old and new backhoes. The old backhoe requires a $55,000 overhaul but generates $30,425 in annual cash flow over 8 remaining years. The new backhoe costs $158,000 initially but generates $43,900 in annual cash flow over 8 years. Calculating the net present value at an 8% discount rate, the old backhoe has a NPV of $133,095.55 while the new backhoe has a higher NPV of $626,573.31, indicating the new backhoe is the better investment.

    Copyright:

    © All Rights Reserved
    Download as XLSX, PDF, TXT or read online from Scribd
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    Download as xlsx, pdf, or txt
    9 views2 pages

    Net Present Value Calculation

    Uploaded by

    akothcathrine062
    The document compares the costs and cash flows of old and new backhoes. The old backhoe requires a $55,000 overhaul but generates $30,425 in annual cash flow over 8 remaining years. The new backhoe costs $158,000 initially but generates $43,900 in annual cash flow over 8 years. Calculating the net present value at an 8% discount rate, the old backhoe has a NPV of $133,095.55 while the new backhoe has a higher NPV of $626,573.31, indicating the new backhoe is the better investment.

    Copyright:

    © All Rights Reserved
    Download as XLSX, PDF, TXT or read online from Scribd
    Flag for inappropriate content
    Download as xlsx, pdf, or txt
    of 2

    Description Old Backhoes($) New Backhoes

    Purchase cost when new 90000 200000


    Salvage value now 42000
    Investment in major overhaul needed 55000
    Salvage value in 8 years 15000 90000
    Remaining years 8 years 8 years
    Net cash flow generated each year 30425 43900

    NPV Calculation( Initial investment) 55000 158000


    Discount rate 8% 8%

    3.666666666667 1.7555555555556
    Old Blackhoes New Blackhoes
    No. of years Investment Rate No. of years Investment Rate
    0 -55000 8% 0 -158000 8%
    1 15000 1 90000
    2 15000 2 90000
    3 15000 3 90000
    4 15000 4 90000
    5 15000 5 90000
    6 15000 6 90000
    7 15000 7 90000

    $133,095.55 $626,573.31

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