Down below is the Chart where the New and Old Backhoes are displayed. Follow these Instructions: A. Calculate the net present value of the old backhoes and the new backhoes. B. Discuss the net present value of each, including what the calculations reveal about whether the company should purchase the new backhoes or continue using the old backhoes. C. Calculate the payback period for keeping the old backhoes and purchasing the new backhoes. (Hint: For the old machines, evaluate the payback of an overhaul.) D. Discuss the payback method and what the payback periods of the old backhoes and new backhoes reveal about whether the company should purchase new backhoes or continue using the old backhoes. Calculate the profitability index for keeping the old backhoes and purchasing new backhoes. The following information is available to use in deciding whether to purchase the new backhoes or old backhoes. Using the 8% Present Value of an Annuity of 1. Old Backhoes New Backhoes Purchase cost when new $90,000 $200,000 Salvage value now $42,000 Investment in major overhaul needed in next year $55,000 Salvage value in 8 years $15,000 $90,000 Remaining life 8 years 8 years Net cash flow generated each year $30,425 $43,900 Answer; From the Answer I received our we supposed to multiply the discount factor by each year ? If so can you display it so I can fully understand. Thank You. Year Inflow Amount (col2) PV factor of 8% (col3) Present Value(col2*col3) 1 30,425 1/1.08 = 0.926 28,735 2 30,425 1/(1.08)2 = 0.857 26,740 3 30,425 1/(1.08)3 = 0.794 24157 4 30,425 0.735 22362 5 30,425 0.681 20719 6 30,425 0.630 19,168 7 30,425 0.583 17,738 8 30,425 0.540 16,430 8 15,000 (Salvage Value) 0.540 8,100 PV OF INFLOW 184,149 NPV = 184,149 - 140,930 = 43,219.
Down below is the Chart where the New and Old Backhoes are displayed. Follow these Instructions:
A. Calculate the
B. Discuss the net present value of each, including what the calculations reveal about whether the company should purchase the new backhoes or continue using the old backhoes.
C. Calculate the payback period for keeping the old backhoes and purchasing the new backhoes. (Hint: For the old machines, evaluate the payback of an overhaul.)
D. Discuss the payback method and what the payback periods of the old backhoes and new backhoes reveal about whether the company should purchase new backhoes or continue using the old backhoes. Calculate the profitability index for keeping the old backhoes and purchasing new backhoes.
- The following information is available to use in deciding whether to purchase the new backhoes or old backhoes. Using the 8% Present Value of an
Annuity of 1. -
Old Backhoes
New Backhoes
Purchase cost when new
$90,000
$200,000
Salvage value now
$42,000
Investment in major overhaul needed in next year
$55,000
Salvage value in 8 years
$15,000
$90,000
Remaining life
8 years
8 years
Net cash flow generated each year
$30,425
$43,900
Answer;
From the Answer I received our we supposed to multiply the discount factor by each year ? If so can you display it so I can fully understand. Thank You.
|
Year |
Inflow Amount (col2) |
PV factor of 8% (col3) |
Present Value(col2*col3) |
|
1 |
30,425 |
1/1.08 = 0.926 |
28,735 |
|
2 |
30,425 |
1/(1.08)2 = 0.857 |
26,740 |
|
3 |
30,425 |
1/(1.08)3 = 0.794 |
24157 |
|
4 |
30,425 |
0.735 |
22362 |
|
5 |
30,425 |
0.681 |
20719 |
|
6 |
30,425 |
0.630 |
19,168 |
|
7 |
30,425 |
0.583 |
17,738 |
|
8 |
30,425 |
0.540 |
16,430 |
|
8 |
15,000 (Salvage Value) |
0.540 |
8,100 |
|
|
|
PV OF INFLOW |
184,149 |
NPV = 184,149 - 140,930 = 43,219.
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