the The Polynesian Urbanization Authority (PUA) buys new computuers for $100,000

Question

the The Polynesian Urbanization Authority (PUA) buys new computuers for $100,000 in May. They estimate annual revenue will be from $50,000 to $400,000, but most likely about $300,000 over the next 5 years.

Operating and Maintenance costs will remain constant at $75,000/year. Their MARR-9%

Inflation is a constant 2.1%

1- What is the present work of PUA's ATCF, adjusted for inflations?

2- What is the EUAW(including inflation) of the present worth of the difference between PUAs expected BTCF and ATCF for the next 5 years?

Explanation / Answer

Solution :

To compute the present work of the PUA we need to compute the present value of the work :

First, we need to compute the cash flow each year

Since inflation is given 2.1% and MARR (Minimum accepted rate of return is 9%) hence the discounted rate = 9% - 2.1% = 6.9%

The cash flow is :

The net present value or the present work will be :

Particulars year1 2 3 4 5 Revenue        3,00,000        3,00,000        3,00,000        3,00,000        3,00,000 Operating cost            75,000            75,000            75,000            75,000            75,000 Gross profit/ Cash flow each year        2,25,000        2,25,000        2,25,000        2,25,000        2,25,000

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