HIBIT 14-8 Net Present Value Method-An Extended Example 1 2 3 Purchase of equipment 4 Investment in working capital 5 Sales 6 Cost of goods sold 7 Out-of-pocket costs for salaries, advertising, etc. 8 Overhaul of equipment 9 Salvage value of the equipment 10 Working capital released 11 Total cash flows (a) 12 Discount factor (14%) (b) 13 Present value of cash flows (a) x (b) 14 Net present value (SUM B13:613) 15 B C D E Year Now 1 2 3 4 5 $ (60,000) $ (100,000) $200,000 $200,000 $200,000 $200,000 $ 200,000 $ (125,000) $ (125,000) $ (125,000) $ (125,000) $ (125,000) $ (35,000) $ (35,000) $ (35,000) $ (35,000) $ (35,000) $ (5,000) $ 10,000 $ 100,000 $ (160,000) $ 40,000 $ 40,000 $ 40,000 $ 35,000 $150,000 1.000 0.877 0.769 0.675 0.592 $ 0.519 $ (160,000) $ 35,080 $ 30,760 $27,000 $ 20,720 $ 77,850 31,410 $ 16 Note: The discount factors come from Exhibit 148-1 in Appendix 148. 17 Exhibit 14-8 Exhibit 14-9 Exhibit 14-10 Exhibit 14-11 Exhibit Source: Microsoft Excel