Prepare a discounted cash flow analysis Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Year o (300,000) Totals (300,000) Investment 135,000 135,000 135,000 135,000 135,000 200,000 200,000 200,000 200,000 Cash Flows Sales Salvage value Operating Costs Major Maintenance Net Cash Flow 200,000 (50,000) (135,000) 1,675,000 (50,000) (1,150,000) (95,000) (95,000) (95,000) (95,000) (95,000) (135,000) (135,000) (135,000) (135,000) (E) 65,000 (300,000) 40,000 40,000 40,000 40,000 40,000 65,000 65,000 65,000 15,000 175,000 Cummulative CF (300,000) (260,000) (220,000) (180,000) (140,000) (100,000) (35,000) 30,000 95,000 160,000 175,000 Hurdle Rate 5% Net Present Value (=NPV) (A) Use the Excel function =NPV in order to determine the value of the future cash flows, net of the initial investment Internal Rate of Return (=IRR) (B) Use the IRR function in order to determine the "interest" earned on the cash flows from year 0 to year 10 Payback Period (c) Look at the cummulative cash flow. How long before the initial investment is paid off? Profitability Index (D) Calculate the ratio of the project's PV of cashflows from years 1-10/ initial investment Major Maintenance $ (85,000) (E) Decide in which year (5-7) this expenditure should be made. Add $5,000 for every year after year 5