Answer Happy

YOUR COMPANY IS CONSIDERING PRODUCING A NEW PRODUCT LINE FOR ITS OUTDOOR FURNITURE LINE. NEW EQUIPMENT WILL BE REQUIRED AT A COST OF $300,000 AND STAFF WILL NEED TO BE TRAINED AT AN ADDED COST OF $20,000. IT IS ESTIMATED THAT NET CASH FLOWS WILL INCREASE (DECREASE) OVER THE MACHINE'S ESTIMATED USEFUL LIFE OF 6 YEARS AS FOLLOWS: YEAR 1. $40,000 YEAR 2. $120,000 YEAR 3. $120,000 YEAR 4. $120.000, YEAR 5. $50,000 YEAR 6. (10,000) IN ADDITION TO THE CASH FLOWS ABOVE, THE EQUIPMENT WILL ALSO NEED AN UPGRADE AT THE END OF YEAR 3 AT AN ESTIMATED COST OF $50,000. IT IS ALSO EXPECTED THE THE EQUIPMENT WILL HAVE A RESIDUAL VALUE OF $8,000. 1. DESCRIBE EACH STEP THAT YOU NEED TO TAKE TO CALCULATE THE NET PRESENT VALUE OF THE ENTIRE 6 YEAR PROJECT. DO NOT DO THE CALCULATION, JUST DESCRIBE EACH STEP. 2. NOTE! THERE ARE TWO WAYS TO CALCULATE THE PRESENT VALUE OF THE $440,000 NET CASH FLOWS FOR YEARS 1 - 6. DESCRIBE THE TWO WAYS TO DO THIS
YOUR COMPANY IS CONSIDERING PRODUCING A NEW PRODUCT LINE FOR ITS OUTDOOR FURNITURE LINE. NEW EQUIPMENT WILL BE REQUIRED AT A COST OF $300,000 AND STAFF WILL NEED TO BE TRAINED AT AN ADDED COST OF $20,000. IT IS ESTIMATED THAT NET CASH FLOWS WILL INCREASE (DECREASE) OVER THE MACHINES ESTIMATED USEFUL LIFE OF 6 YEARS AS FOLLOWS: le YEAR 1. $40,000 YEAR 2. $120,000. YEAR 3. $120,000 YEAR 4. $120,000 YEAR 5. $50,000 YEAR 6. (10,000) IN ADDITION TO THE CASH FLOWS ABOVE, THE EQUIPMENT WILL ALSO NEED AN UPGRADE AT THE END OF YEAR 3 AT AN ESTIMATED COST OF $50,000. IT IS ALSO EXPECTED THE THE EQUIPMENT WILL HAVE A RESIDUAL VALUE OF $8,000. 1. DESCRIBE EACH STEP THAT YOU NEED TO TAKE TO CALCULATE THE NET PRESENT VALUE OF THE ENTIRE 6 YEAR PROJECT. DO NOT DO THE CALCULATION, JUST DESCRIBE EACH STEP. 2. NOTE! THERE ARE TWO WAYS TO CALCULATE THE PRESENT VALUE OF THE $440,000 NET CASH FLOWS FOR YEARS 1 - 6. DESCRIBE THE TWO WAYS TO DO THIS.