8-1 Solutions to Chapter 8 Net Present Value and Other Investment ...

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Chapter 08 - Net Present Value and Other Investment Criteria37.a.1,500 (2,400 $3.50) 1,500 (2,400 $4.00)NPV $27,00021.081.081,500 (2,400 $4.50) 1,500 (2,400 $4.50) 1,500 (2,400 $4.50) ... $61,05834201.081.081.08b. Using Excel, IRR = 31.37%.c. Cumulative cash flows are positive after year 4.Year CF CUM CF0 -27000 -270001 6900 -201002 8100 -120003 9300 -27004 9300 6600d. The equivalent annual cost of the new machine is the 20-year annuity withpresent value equal to $27,000:C 10.0810.08(1.08)20$27,000C annuity factor (8%, 20 years) = $270,000C 9.8181 = $27,000 C = EAC = $2,750.02e. The present value of the annual savings is given by the following equation:1,500 (2,400 $3.50)1,500 (2,400 $4.00)PV 21.081.081,500 (2,400 $4.50)1,500 (2,400 $4.50) ... $88,0583201.081.08The equivalent annual annuity for this present value at 8% for 20 years is$8,968.92.EAA = present value of annual savings/annuity factor (8%, 20 years)= $88,058/9.8181 = $8,968.928-18
Chapter 08 - Net Present Value and Other Investment CriteriaThe difference between equivalent annual savings and costs is $6,219 ($8,969 –$2,750). This value is equivalent to an annual annuity with a present value of$61,058, the net present value from part (a).$6,219 × annuity factor (8%, 20 years) = $6,219 × 9.8181 = $61,058Est time: 16–208-19
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8-1 Solutions to Chapter 8 Net Present Value and Other Investment ...

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