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Dear sir/madam,
Please show me the workings as how to arrive at the answer for the Questions below:1. A project has requires an investment of $25000 and is expected to generate a cash inflow of $8000 a year for 5 years (withe the first receipt in one years time).
What is the sensitivity to change the cash inflow each year? Answer: -17.582. A machine costs $72000 and has a maximum life of 3 years. The running costs each year are as follows :
After 1 year : $24000
After 2 years : $16600
After 3 years : $ 9600
The cost of capital is 15%
What is the equivalent annual cost if the company decides to replace the machine eery 2 years?
Answer: $44 878Thanks a lot.
Regards,
SarasQuestion 1:
The cost of capital given in the question is 10%, so the present value of the cash inflows is 8000 x 3.791 = 30328.
The NPV is therefore 30328 – 25000 = 5328.
So the sensitivity is 5328/30328 = 17.57%Question 2:
You have copied out the question wrongly. The flows you have given are the scrap values not the running costs.
The running costs are:
1 year 7200
2 years 9600
3 years 12000So the PV of the first machine is -72000 – (7200 x 0.87) + ((16600 – 9600) x 0.756) =
– 72972So the EAC is 72972 / 1.626 = 44878
(1.626 is the 2 year annuity factor at 15%)Hi sir,
Thanks a lot sir. Sorry to copy the question wrongly.
Really appreciate your help.Regards,
Saras
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