BBC Company owns a machine which was purchased 4 years ago for $ 75 000. Although the machine will last another 6 years, it will need a major overhaul (修理) costing $15 000 in another 2 yeaars. The net cash inflow from the machine are expected to be $45 000 annually. At present, the salvage value is $20 000 but this will drop to $10 000 in 6 years' time providing the overhaul is done.
You were at te local manufacturing(製造業) exhibition(展覽) where you were shown a new machine would result in net cash inflows of $55 000 annually, would last 6 years and would have a residual value of $8 000.
Using the net present value technique with a discount rate of 10% decide whether to keep the old machine or buy the new one.
PS:
我成條都唔係太識解, 又唔識做, 幫幫手丫唔該
個estimated life 係咪應該係 10 年?
如何計呢條 Net Present Value 淨現值?
2008-05-05 3:46 am
回答 (3)
2008-05-06 4:37 am
✔ 最佳答案
You can think in this way:You get 2 plans on your hand, one is continuously using the old machine, but you need to repair the machine in year 11; the other is buy a new machine in year 5.
First of all, I suggest you to draw a time line of these two plans, one is for the old machine, the other is for the purchase of new machine.
You need to know that, if you keep using the old machine, the life of the old machine at the end when it expire is in year 12, since you get to repair the machine after year 10.
If you buy a new one, you will encounter a expense in year 5 and the machine will expire in year 11.
Tips:
1) You can separate in the two parts in your calculatoin, the continuously using the old machine, and the buying a new machine.
2) Calculate the depreciatoin respectively, note that the depreciation will change in year 11 in the old machine plan.
3) Calculate the Operating Cash Flow {( Revenue + Depreciation) [In this question only!!]}
4) Calculate the Discounted Cash Flow for each year using the operating cash flow in each year ( in this question only, since there are no NWC encounter)
Discounted Cash Flow = Operating Cash Flow x [1/(1 r)^t]
5) Calculate the Net Present Value (NPV) using the Discounted Cash Flow.
NPV = Expenses (-ve number) + Discounted Cash Flow each years.
6) Compare which plans will generate a higher NPV, and accept the project with the highest NPV
Conclusion:
I strongly encourage you to try it yourself, since you will learn from what you did.
The final answer you get, will be keep using the old machine rather than buy the new one.
參考: My experience
2008-05-06 7:42 pm
What is the initial cost of the new machine?
2008-05-06 11:42:10 補充：
NPV from old machine = 45,000/(1+10%)+(45,000-15000)/(1+10%)^2+45,000/(1+10%)^3+45,000/(1+10%)^4+45,000(1+10%)^5+(45,000+10,000)/(1+10%)^6=$189,234.78. NPV from new machine =-80,000+55,000/(1+10%)+55,000/(1+10%)^2+55,000/(1+10%)^3+55,000/(1+10%)^4+55,000/(1+10%)^5+(55,000+8,000)/(1+10%)^6=$164,055.13. As NPV from old machine is larger than new one, we should keep the old machine.
2008-05-06 11:42:10 補充：
NPV from old machine = 45,000/(1+10%)+(45,000-15000)/(1+10%)^2+45,000/(1+10%)^3+45,000/(1+10%)^4+45,000(1+10%)^5+(45,000+10,000)/(1+10%)^6=$189,234.78. NPV from new machine =-80,000+55,000/(1+10%)+55,000/(1+10%)^2+55,000/(1+10%)^3+55,000/(1+10%)^4+55,000/(1+10%)^5+(55,000+8,000)/(1+10%)^6=$164,055.13. As NPV from old machine is larger than new one, we should keep the old machine.
2008-05-06 2:52 am
new machine initial cost : $100 000
If you traded in your old machine, the new one would cost you $ 80 000
If you traded in your old machine, the new one would cost you $ 80 000
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