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Data Example E Cost of equipment needed $60,000 Working capital needed $100,000 Overhaul of equipment in four years $5,000 Salvage value of the equipment in

Data
Example E
Cost of equipment needed $60,000
Working capital needed $100,000
Overhaul of equipment in four years $5,000
Salvage value of the equipment in five years $10,000
Annual revenues and costs:
Sales revenues $200,000
Cost of goods sold $125,000
Out-of-pocket operating costs $35,000
Discount rate

14%

Enter a formula into each of the cells marked with a ? below
Exhibit 7-8
Years
Now 1 2 3 4 5
Purchase of equipment ?
Investment in working capital ?
Sales ? ? ? ? ?
Cost of goods sold ? ? ? ? ?
Out-of-pocket operating costs ? ? ? ? ?
Overhaul of equipment ?
Salvage value of the equipment ?
Working capital released ?
Total cash flows (a) ? ? ? ? ? ?
Discount factor (14%) (b) ? ? ? ? ? ?
Present value of cash flows (a) x (b) ? ? ? ? ? ?
Net present value ?

*Use the formulas from Appendix 7B:
Present value of $1 = 1/(1+r)^n
Present value of an annuity of $1 = (1/r)*(1-(1/(1+r)^n))
where n is the number of years and r is the discount rate

Fill in the cells with question marks using formulas that refer back to the given data.

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