chapter 9 — OpenTuition Forums

BBrian4y ago

sir in the example 2 of the free lectures you had stated that "the minute we sell this machine in two years time, we will buying a new machine . and we assume the same cashflows keep getting repeated … meaning 72972 will get incurred every two years …2,4,and so on..." i did not understand how $72972 will get repeated ... what does that mean sir thank you in advance

John MoffatTutor4y ago#1

72,972 is the PV of just one 2 year cycle. The 2 year cycle keeps getting repeated every two years and therefore the PV each time it is repeated is 72,972.

BBrian4y ago#2

so that means the scrap value also should be unchanged uncluding the cashflows right sir ?

John MoffatTutor4y ago#3

As I state in my lectures, a big assumption that we always make is that the cash flows (including the scrap value) stay the same every time we replace the asset.