Example E

Cost of equipment needed

Working capital needed

Overhaul of equipment in four years

Salvage value of the equipment in five years

Annual revenues and costs:

Enter a formula into each of the cells marked with a $?$ below

Exhibit $14-8$

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 $13$B:

Present value of $$1=\frac{1}{(1+r{)}^n}n$

Present value of an annuity of $$1=(\frac{1}{r}{)}^{**}(1-(\frac{1}{(1+r{)}^n}n))$

where $n$ is the number of years and $r$ is the discount rate