You want to purchase a new oven for your pizza restaurant that will increase you

Question

You want to purchase a new oven for your pizza restaurant that will increase your pizza baking and revenue generating capacity. The oven will cost S15.000 and you estimate that your first year revenue will increase by $5,000. the second year revenue will increase by $6,000 and your third year revenue will increase by $6,000. Your discount rate is 6%. Your bank will loan you the money for the oven if your net present value is positive after three years. What is your net present value for the purchase and revenue increases and will your bank loan you the money? You're the first in your family to go to college and your grandmother is excited for you. So excited in fact that she's offered to put $2000.00 into an account after each year completed. For example, at the end of your freshman year, she'll put $2000 into an account that cams 5% per year. She'll do the same at the end of your sophomore and junior years and the final gift of $2000 will be upon graduation. Given the 5% interest and the four payments, calculate the total value of your grandmother's gift. (I recommend you draw a time line of the deposits and remember, they're at the end of the college year)

Explanation / Answer

Ans 36 Year Cash Flow Discount factor 6% Discounted cash flow 0 -15000 1 -15000 1 5000 0.9434 4716.98 2 6000 0.8900 5339.98 3 6000 0.8396 5037.72 NPV 94.68 Yes NPV is positive so the loan can be granted Ans 37 Future Value of annuity will be calculated a*(r^n-1)/r-1 r= interest rate n=No.of years a=Annula payment 2000*((1.05)^4)-1)/1.05-1 8620.25 Ans $8620 rounded off

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