You have an old furnace that heats your house, but consumes a lot of fuel. You can sell it to a junk yard that will pay you $1,000 for the scrap parts. A new furnace costs $10,000 is will require less fuel to keep your house warm. If you scrap the old furnace and buy a new one, what is the out-of-pocket cost to you? In other words, how many dollars does it cost you to replace the furnace? That's CF0. Don't forget to make sure the sign (+/-) is correct.

If you keep the old furnace, you will spend $2,500/year for the next 10 years on fuel. If you buy the new furnace, your heating bill will only be $1,000 per year for 10 years. What is the change to your cash flow, each year for 10 years, if you replace your furnace? In other words, what is the cash flow from making this change? That's CF1 (the first cash flow, which you pay or receive for some number of years). How many years will you save this much? That's F01 (frequency of the first cash flow) Don't forget make sure the sign (+/-) is correct.

If your cost of capital is 6%, what is the NPV of this capital budgeting decision, to buy a more fuel efficient furnace that saves you money on your utility bill every year for 10 years?