Guy Wood Lumber Inc. is considering the purchase of a new lathe machine. The new lathe will cost $30 000, have an eight-year life, and create cost savings of $5 000 per year. The new lathe will require $700 of maintenance each year. Guy Wood Lumber Inc. uses a discount rate of 9 per cent. The annuity figure of 9 per cent for 8 years is 5.538

a. Compute the net cash flow per year.
b. Compute the net present value of the lathe.
c. Determine the payback period.

Question

Guy Wood Lumber Inc. is considering the purchase of a new lathe machine. The new lathe will cost $30 000, have an eight-year life, and create cost savings of $5 000 per year. The new lathe will require $700 of maintenance each year. Guy Wood Lumber Inc. uses a discount rate of 9 per cent. The annuity figure of 9 per cent for 8 years is 5.538

a. Compute the net cash flow per year.
b. Compute the net present value of the lathe.
c. Determine the payback period.

anonymous · Answer

ok it is ready .

anonymous · Answer

maybe there were some little difference between the ways of calculating of PV,Due to floating point

goldrush18 · Answer

ok thanks im going through it now

anonymous · Answer

differences in result.

goldrush18 · Answer

why are they raised to a power?

anonymous · Answer

it is a very fundamental question .
A dollar today is worth against the next year. Due to inflation and other reasons (risks).
 So with that equation,  decrease the value of revenues of the following years  to get the present value of them.
$$PV = A \times (1 - (1 + r)^{n})/ r$$
r = discount rate    and     n = years