BUS5111: WA #2 Solution

Investment: 80,000
Cash inflows 14,000 for 7 years
5,000 at year #7
Discount rate is 7%

Partner:
Year 0 1 2 3 4
Project Discount Rate 0.07
Equipment purchase price ($80,000)
Cash inflow from new equipment $14,000 $14,000 $14,000 $14,000
Salvage value
Total cash in (out) $14,000 $14,000 $14,000 $14,000
Discount Factor (7%) 0.9346 0.8734 0.8163 0.7629
Present Value $13,084 $12,228 $11,428 $10,681
Net Present Value ($80,000)

Investment: 80,000
Cash inflows 14,000 for year 1
Cash inflows 16,000 for years 3, 4, and 5
Cash inflows 17,000 for years 5, 6, and 7
5,000 at year #7
Discount rate is 7%

Yours:
Year 0 1 2 3 4
Project Discount Rate 0.07
Equipment purchase price ($80,000)
Cash inflow from new equipment $14,000 $16,000 $16,000 $16,000
Salvage value
Total cash in (out) $14,000 $16,000 $16,000 $16,000
Discount Factor (7%) 0.9346 0.8734 0.8163 0.7629
Present Value $13,084 $13,975 $13,061 $12,206
Net Present Value ($80,000)
 5 6 7 7 TOTALS

$14,000 $14,000 $14,000

$5,000
$14,000 $14,000 $14,000 $5,000
0.7130 0.6663 0.6227 0.6227
$9,982 $9,329 $8,718 $3,114 $78,564
($1,436)

5 6 7 7 TOTAL

$17,000 $17,000 $17,000

$5,000
$17,000 $17,000 $17,000 $5,000
0.7130 0.6663 0.6227 0.6227
$12,121 $11,328 $10,587 $3,114 $89,475
$9,475