Your company is looking to buy a new piece of equipment to help it increase manufacturing capacity to meet demands for its largest product. The managers are wondering what the return would be if the equipment was purchased for $8,000. You can expect at least a 15% return on the investment elsewhere and are counting on the following yearly cash flows: Year #1: $2,000, Years #2-#3: $3,000 each year, Years #4-#6: $4,000 each year. What are each of the cash flow computations for comparison?
Step 1. Enter Cash Flows
Select the variable Cash Flows and enter the following data:
| # | Amount | Occ |
|---|
| 0 | -8,000 | 1 |
| 1 | 2,000 | 1 |
| 2 | 3,000 | 2 |
| 3 | 4,000 | 3 |
Select Close from the Table menu when completed.
Step 2. Enter Additional Data
| Variable | Enter |
|---|
| Intrst/Yr% | 15 |
| Periods/Yr | 1 |
Step 3. Compute
Computation may occur automatically. If not, scroll to the desired variable and choose Calculate from the menu.
Calculating each of the remaining variables in the template yields the following answers:
- NPV = $3,985.14
- NFV = $9,217.87
- MIRR% = 23.01%
- NUS = $1,053.02
- Payback = 3 periods (in this case years because periods per year is one)
- Pft Index = 1.50
- Total = $12,000
