Question

An investment in manufacturing equipment yields the following cash flows for 8 years. At the end of the 8th year the equipment can be sold for $15,000. Assuming an interest rate of 14% (compounded annually), how much would you be willing to invest in this manufacturing equipment?

C=?	I=2000	I=2000	I=2000	I=2000	I=1000	I=1000	I=1000	I=1000	L=$15,000
0	1	2	3	4	5	6	7	8

C: Cost, I: Income, L: Salvage Value

Answer 1

CACLULATION OF THE PRESENT VALUE OF FOLLOWING CASH FLOW
Years	Payment (A)	PVF of $ 1 @ 14 % (B)	Present Value (A XB)
0
1	$                 2,000	0.8772	$           1,754.39
2	$                 2,000	0.7695	$           1,538.94
3	$                 2,000	0.6750	$           1,349.94
4	$                 2,000	0.5921	$           1,184.16
5	$                 1,000	0.5194	$               519.37
6	$                 1,000	0.4556	$               455.59
7	$                 1,000	0.3996	$               399.64
8	$                 1,000	0.3506	$               350.56
8	$              15,000	0.3506	$           5,258.39
	Total		$         12,810.96
Present Value of the all cash flow is Coming $ 12,810.96
So we can give maximum investment in this Equipment is $ 12,810.96
Answer =	$        12,810.96