Given the following cash flow in k$. Find the NPV (Net Present Value) at 20% per

Question

Given the following cash flow in k$. Find the NPV (Net Present Value) at 20% peryear and at 25% per year. Calculate the IRR (Internal Rate of Return). Assume that an excavating machine is purchased for $20,000. Hourly gas and oil charges will be $6.20. (Assume 1,500 hours/year usage). A major overhaul of the engine will be needed in three years at a cost of $4,000. After six years, the trade-in value will be $1,500. What is the total present worth of the machine over its six-year life if money is borrowed at 12% What is the equivalent uniform annual cost?

Explanation / Answer

Year cashflow PV Factor at 20% Dis cashflow 0 -1000 1 -1000 1 475 0.83333 395.83175 2 400 0.69444 277.776 3 330 0.5787 190.971 4 270 0.48225 130.2075 5 200 0.40187 80.374 NPV 75.16025 Year cashflow PV Factor at 25% Dis cashflow 0 -1000 1 -1000 1 475 0.8 380 2 400 0.64 256 3 330 0.512 168.96 4 270 0.4096 110.592 5 200 0.32768 65.536 NPV -18.912 Year cashflow PV Factor at 24% Dis cashflow 0 -1000 1 -1000 1 475 0.80645 383.06375 2 400 0.65036 260.144 3 330 0.52448 173.0784 4 270 0.42297 114.2019 5 200 0.3411 68.22 NPV -1.29 IRR = 24%

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