Homework Answers
| Machine A | |||||
| Discount rate | 0.1 | ||||
| Year | 0 | 1 | 2 | 3 | 4 |
| Cash flow stream | -30000 | -5000 | -5000 | -5000 | 0 |
| Discounting factor | 1 | 1.1 | 1.21 | 1.331 | 1.4641 |
| Discounted cash flows project | -30000 | -4545.45 | -4132.23 | -3756.57 | 0 |
| NPV = Sum of discounted cash flows | |||||
| NPV Machine A = | -42434.26 | ||||
| Where | |||||
| Discounting factor = | (1 + discount rate)^(Corresponding period in years) | ||||
| Discounted Cashflow= | Cash flow stream/discounting factor | ||||
| Equvalent annuity(EAA)= | -13386.77 | ||||
| Required rate = | 0.1 | ||||
| Year | 0 | 1 | 2 | 3 | 4 |
| Cash flow stream | 0 | -13386.8 | -13386.8 | -13386.8 | -13386.77 |
| Discounting factor | 1 | 1.1 | 1.21 | 1.331 | 1.4641 |
| Discounted cash flows project | 0 | -12169.8 | -11063.4 | -10057.7 | -9143.344 |
| Sum of discounted future cashflows = | -42434.26 | ||||
| Discounting factor = | (1 + discount rate)^(Corresponding period in years) | ||||
| Discounted Cashflow= | Cash flow stream/discounting factor | ||||
| Machine B | |||||
| Discount rate | 0.1 | ||||
| Year | 0 | 1 | 2 | 3 | |
| Cash flow stream | -41000 | -4000 | -4500 | 3000 | |
| Discounting factor | 1 | 1.1 | 1.21 | 1.331 | |
| Discounted cash flows project | -41000 | -3636.36 | -3719.01 | 2253.944 | |
| NPV = Sum of discounted cash flows | |||||
| NPV Machine B = | -4610143.00% | ||||
| Where | |||||
| Discounting factor = | (1 + discount rate)^(Corresponding period in years) | ||||
| Discounted Cashflow= | Cash flow stream/discounting factor | ||||
| Equvalent annuity(EAA)= | -18538.07 | ||||
| Required rate = | 0.1 | ||||
| Year | 0 | 1 | 2 | 3 | |
| Cash flow stream | 0 | -18538.1 | -18538.1 | -18538.1 | |
| Discounting factor | 1 | 1.1 | 1.21 | 1.331 | |
| Discounted cash flows project | 0 | -16852.8 | -15320.7 | -13927.9 | |
| Sum of discounted future cashflows = | -46101.43 | ||||
| Discounting factor = | (1 + discount rate)^(Corresponding period in years) | ||||
| Discounted Cashflow= | Cash flow stream/discounting factor | ||||
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