We appreciate your visit to Your firm intends to buy a CNC lathe for 100 000 In each of the first three years of operation the lathe will contribute 33. This page offers clear insights and highlights the essential aspects of the topic. Our goal is to provide a helpful and engaging learning experience. Explore the content and find the answers you need!
Answer :
The present value of the purchase of the lathe is £102,335.32 to the nearest £10.
How do we calculate?
We have the cash flows for the lathe as:
Year 1: £33,000
Year 2: £33,000
Year 3: £33,000
Year 4: £20,000
Present value
= CF1 / (1 + r)[tex]^1[/tex] + CF2 / (1 + r)² + CF3 / (1 + r)[tex]^3[/tex] + CF4 / (1 + r)[tex]^4[/tex]
Present value
= £33,000 / (1 + 0.07)[tex]^1[/tex] + £33,000 / (1 + 0.07)² + £33,000 / (1 + 0.07)[tex]^3[/tex] + £20,000 / (1 + 0.07)[tex]^4[/tex]
Present value
= £30,841.12 + £28,824.08 + £27,007.16 + £15,662.96
Present value = £102,335.32
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