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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