Solution Exhibit 13.20
Net present-value analysis of purchasing new automatic machine.
Total
present
value
Present-
value
discount
factor
at 18%
Sketch of relevant cash flows
End of year
0 1
2 3
4 A. Automatic machine Net initial investment
£(44,000)
←−
1.000
←−
£(44,000) Current disposal price of old equipment
5,000
←−−
1.000
←−− Recurring operating cash costs
(71,285)
←−−
2.690
←−−−−−−−−
£(26,500) £(26,500)
£(26,500)
£(26,500
) Present value of net cash outflows
£(110,285) B. Moulding machine Terminal disposal price of old equipment
4 years hence Recurring operating cash costs
(121,050
)
←−−
2.690
←−−−−−−−−
£(45,000) £(45,000) £(45,000) Present value of net cash outflows Difference in favour of replacement AB An alternative analysis of cash inflows and outflows (in thousands) is
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