The executive of a factory proposes to acquire a press, which

1 was acquired through a loan from ABC Bank, which requires 5

years with an interest of 36% CM. The press has a useful life of
- the press producing monthly income of $83,000. If he invested
the press?

(VP ING+ VP SALV - VP EGRES)

The press should not be acquired because bringing the values to present value there is no
profitability
This is $2,000,000; the money needed can be
e paid in uniform monthly payments, over 3 years and a
salvage value of $400,000, it is expected that onista expects
to earn a rate of 42% CM. Should it be purchased

$ 2,000,000
3%
36

$ 91,607.59

SALVAGE VALUE
83,000 Future Salvage Value $ 400,000
3.5% Expected Monthly Rate 3.5%
36 No. Periods Months 36

$ 1,684,110.99 Present salvage value $ 115,933

3
-
MACHINE A
123 4
Investment $ (400,000) $ (400,000)
Income $ 100,000.0 $ 108,000.0 $ 116,640.0 $ 125,971.2
Expenses $ 20,000 $ 20,000 $ 20,000 $ 20,000

FNC $ 80,000.0 $ 88,000.0 $ 96,640.0 $ (294,028.8)

RATE 20%
VPN $ (227,009.93)

MACHINE B
123 4
Investment $ (500,000)
Income $ 200,000.0 $ 216,000.0 $ 233,280.0 $ 251,942.4
Expenses $ 20,000 $ 20,000 $ 20,000 $ 20,000

FNC $ 180,000.0 $ 196,000.0 $ 213,280.0 $ 231,942.4

RATE 20%
VPN $ 300,747.71

MACHINE C
123 4
Investment $ (700,000)
Income $ 300,000.0 $ 324,000.0 $ 349,920.0 $ 377,913.6
Expenses $ 30,000 $ 30,000 $ 30,000 $ 30,000

FNC $ 270,000.0 $ 294,000.0 $ 319,920.0 $ 347,913.6

RATE 20%
VPN $ 802,529.74
 5 6 7 8 9 10
$ (400,000)
$ 136,048.9 $ 146,932.8 $ 158,687.4 $ 171,382.4 $ 185,093.0 $ 199,900.5
$ 20,000 $ 20,000 $ 20,000 $ 20,000 $ 20,000 $ 20,000 $ 116,048.9 $
126,932.8 $ 138,687.4 $ (248,617.6) $ 165,093.0 $ 179,900.5

5 6 7 8 9 10
$ (500,000)
$ 272,097.8 $ 293,865.6 $ 317,374.9 $ 342,764.9 $ 370,186.0 $ 399,800.9
$ 20,000 $ 20,000 $ 20,000 $ 20,000 $ 20,000 $ 20,000

$ (247,902.2) $ 273,865.6 $ 297,374.9 $ 322,764.9 $ 350,186.0 $ 379,800.9

5 6 7 8 9 10

$ 408,146.7 $ 440,798.4 $ 476,062.3 $ 514,147.3 $ 555,279.1 $ 599,701.4

$ 30,000 $ 30,000 $ 30,000 $ 30,000 $ 30,000 $ 30,000

$ 378,146.7 $ 410,798.4 $ 446,062.3 $ 484,147.3 $ 525,279.1 $ 569,701.4

5
.
OLD MACHINE
1 2 3 4
Investment $ (120,000)
Income
Expenses $ 220,000 $
220,000 $ 220,000 $ 220,000
FNC $ (220,000) $ (220,000)$ (220,000) $ (220,000)

RATE 28%
VPN $ (839,161.70)

NEW MACHINE
1 2 3 4
Investment $ (550,000)
Income
Expenses 100,000 $ 100,000 $ 100,000
$ 100,000 $

FNC $ (100,000) $ (100,000)$ (100,000) $ (100,000)

RATE 28%
VPN $ (876,891.68)
 5 6 7 8 9 10

$ 220,000 $ 220,000 $ 220,000 $ 220,000 $ 220,000 $ 220,000

$ (220,000) $ (220,000) $ (220,000) $ (220,000) $ (220,000) $ (220,000)

5 6 7 8 9 10

$ 100,000 $ 100,000 $ 100,000 $ 100,000 $ 100,000 $ 100,000

$ (100,000) $ (100,000) $ (100,000) $ (100,000) $ (100,000) $ (100,000)

7. A company is considering purchasing a manual machine that costs $30,000 and costs
$9,000 to operate for the first 4 years but costs $400 annually and the machine would only last
6 years because of its high technology and delicate design. Your save value
e.AA+Ac 11 00/

COST USEFUL LIFE RESCUE

MANUAL MACHINE $ 30,000 12 YEARS $ 3,000

AUTOMATIC MACHINE $ 58,000 6 YEARS $ 15,000

MANUAL MACHINE
0 12 3
INVESTMENT $ (30,000)
ANNUAL OPERATION COST $ 9,000 $ 9,000 $ 9,000
RESCUE
FNC $ (30,000) $ (9,000) $ (9,000) $ (9,000)

VPN 20% ($ 66,969.83)

AUTOMATIC MACHINE
0 12 3
INVESTMENT $ (58,000)
ANNUAL OPERATION COST $ 4,000 $ 4,000 $ 4,000
RESCUE
FNC $ (58,000) $ (4,000) $ (4,000) $ (4,000)

VPN 20% $ (88,475)

Manual machine must be selected

 It is expected to have a useful life of 12 years, with a salvage value of $3,000. Expected
uring the next eight years. The other alternative is to buy an automated machine from a
ment will be $15,000. Due to its automation, the operating costs will be $4,000 per year.

COST OF
OPERATION RATE

$ 9,000 20
$ 4,000 % 20
%

4 5 6 7 8 9 10

$ 9,000 $ 8,600 $ 8,200 $ 7,800 $ 7,400 $ 7,000 $ 6,600

$ (9,000) $ (8,600) $ (8,200) $ (7,800) $ (7,400) $ (7,000) $ (6,600)

4 5 6 7 8 9 10
(58,000)
$ 4,000 $ $ 4,000 $ 4,000 $ 4,000 $ 4,000 $ 4,000
4,000 $ $ 15,000
$ (4,000) $ (4,000) $ (47,000) $ (4,000) $ (4,000) $ (4,000) $ (4,000)
That costs annually cost $58,000. This Select the machine

11 12

$ 5,800
6,200 $ $ 3,000
$ (6,200) $ (2,800)

11 12

$ 4,000 $ 4,000
$ 15,000
$ (4,000) $ 11,000
9
.
ALTERNATIVE TO
1 2 3 4
Investment $ (66,000,000)
Income $ 120,000,000.0
Expenses $ 200,000 $ 230,000 $ 264,500 $ 304,175
FNC $ (200,000) $ (230,000) $ (264,500) $ 119,695,825

RATE 20%
VPN $ (8,755,774.98)

ALTERNATIVE B
1 2 3 4
Expenses $ (10,000,000) $ (12,000,000) $ (14,400,000) $ (17,280,000)

RATE 20%
VPN ($ 40,000,000.00)
11.

EXERCISE #11
AN ITEM HAS A LIST PRICE OF $900,000 BUT CAN BE PURCHASED IN CASH WITH A RATE OF 3.5%
MONTHLY CASH. WHAT ALTERNATIVE SHOULD YOU DECIDE?
SOLUTION
OPTION A: NPV (CASH)= $810000(0.9)=$810000

OPTION B: NPV (CREDIT)= $360000+63000 ( 〖1-(1+0.035)" " 〗^(-10)/0.035 )

=$360000+63000(8.3166)
=$360000+523945.8
=$883946.1353
The best alternative is option A, purchasing in cash.
N DISCOUNT OF 10% OR AALES OF $63000. SUPPOSING
15
.
RATE 3.5% 51.11%
MONTHLY CAO YEAR 1 $ 3,000

MACHINE 1
0 1 2 3 4 5
K $ 800,000
CAO $ 36,000 $ 24,000 $ 48,000 $ 72,000 $ 96,000

VP INVESTMENT -$ 800,000.00
VP CAO -$ 92,328.48
VPN -$ 892,328.48

EMPLOYEE
0 1 2 3 4 5

SALARY $ 300,000 $ 375,000 $ 468,750 $ 585,938 $ 732,422

VPN
-$ 844,510.85
 67

$ 120,000 $ 144,000

67

$ 915,527 $ 1,144,409
A factory that currently uses a machine worth $800,000, with a useful life of 4 years and
a salvage value of $150,000 is offered another model of machine whose cost is
$1,200,000, with a useful life of 10 years and a value of salvage of $200,000. Assuming
a rate of 22%, should you change the model? Use CC

YEARS 0 4 8 12 16
INVESTMENT $ (800,000)
INCOME $ 150,000 $ 150,000 $ 150,000 $ 150,000
EXPENSES $ 800,000 $ 800,000 $ 800,000 $ 800,000

FNC $ (650,000) $ (650,000) $ (650,000) $ (650,000)

Old Machine
YEARS 0 10 20
INVESTMENT $ (1,200,000)
RATE
INCOME 22% CC$ 200,000 $ 200,000
VPN
EXPENSES $ (1,312,627) $ 1,200,000 $ 1,200,000

122%

RATE 22% CC
VPN $ (1,855,160)
FNC $ (1,000,000) $ (1,000,000)
New Machine
The model of the machine should not be changed because with the current machine there are
fewer losses compared to the losses that would occur when purchasing a new machine.

122%
19
.
A piece of laboratory equipment has an initial cost of $200,000 and a useful life of 10 years,
after d How much can be paid for similar equipment that has a useful life of 8 years and a
salvage value and a rate of 25%. Use CC

TEAM 1
Cost (C) 200,000.00
Useful life (k) 10
Rescue (S) 0
Rate (i)
25.00%

YEARS 0 1 2
INITIAL INVESTMENT - 200,000
CASH FLOWS - 200,000

compound interest 831%

VPN team1 - 224,058

TEAM 2 (SIMILAR)
Cost (C) = $X
$X C+25000 8
Replacement = C + $25000
0 25%
Useful life (k) years Salvage (S)
Rate (i) = 25% = 0.25

YEARS 0 1 2
25,000
initial investment cash flows 25,000

Compound interest 496%

Now we compare the VPN
x + 25,000
=E19=(-X(-(X+25000)/E28)) —224,058.0499 = —x--------------------------------
4.960464478
—5.960464478x — 25,000
 -224.058,0499 =
=E19=(-5.96464478x-25000)/E28)) 4.960464478

=-1,111,431.998=-5.960464478X-25,000 1,111,431.998 = —5.960464478x — 2!

=-1,086,431.998=-596064478x -1.086.431,998 = -
5,9604644781
X=182,273.0429
x = 182,273.0429
$182,273 should be paid for the
equipment.
e which must be replaced at the same cost. position of $25,000 more than the
initial cost?

3 4 5 6 7 8 9 10
- 200,000
- 200,000

3 4 5 6 7 8 9 10
5.000