The net present value for new backhoes
| NET PRESENT VALUE
Get New Backhoes |
||||
| Time
Period |
Cash
Flow |
8%
Get Discount Rate |
Present
The Value |
|
| Purchase Equipment | 0 | $ 200,000 | 1 | $ (200,000) |
| A piece of old equipment has a salvage value | 0 | 42,000 | 1 | 42,000 |
| Net cash flow | 8 | 43,900 | 5.74664 | 252,277 |
| Salvage Value | 8 | 90,000 | 0.54027 | 48,624 |
| Net present value | $ 142,901 | |||
This is the The Net Present Value of an Old Backhoe
| NET PRESENT VALUE
Retired Backhoes |
||||
| Time
Period |
Cash
Flow |
8%
Get Discount Rate |
Present
The Value |
|
| Overhaul Cost | 1 | $ 55,000 | 0.92593 | $ (50,926) |
| Net cash flow | 8 | 30,425 | 5.74664 | 174,841 |
| Salvage Value | 8 | 15,000 | 0.54027 | 8,104 |
| Net present value | $ 132,319 | |||
- You can pay back this method
The payback period is the cost of capital investment or Net annal cash flow.
Payback New period
The cost of new backhoes requires capital investment of $200,000 to $42,000 = $18,000
Costs of buying new backhoes are higher than those for Kapital investment/net Cashflow.
A new backhoe’s payback period is 158,000/43.900 3.59 years
Repayment for the elderly
The capital investment needed to replace old backhoes is $55,000
Time to pay back older backhoes
Old backhoes have a payback period of $55,000/30.425 1.8 years
- Index of profitability
Profitability Index = Net cash flow present value / initial investment
Current Value = Profitability Index of New Backhoes for Net Cash Flow / Initial Investment
Index of profitability in new backhoes = ($252,277 +$48.624) = $188,000 1.904
The value of an older backhoe equals the profitability index. / Initial investment
Index of profitability for old backhoes = $174 841 + $9,104/55,000 3.326
- Ratio of Internal Return
| Ratio of Internal Return | ||||
| Internal Rate of Return Factor = Investment Required Net Annual Cash Flows | ||||
| $158,000
$43,900 |
= 3.5990 |
|||
| $55,000
$30,425 |
= 1.8077 | |||
Both the old and new backhoes have a positive net present value. It is expected that the Internal Rate of Return Factor, which is the sum of both older and new backhoes, will be acceptable for both projects at 8% or greater.
Question 2
Here’s a case study that shows the benefits. You should invest in new backhoes. Backhoe operators will be better equipped to create precise trenches. It will make trench digging more efficient, easier and faster. So get out there and start doing it. Important! You should avoid investing in stocks. The new backhoes also have some drawbacks. One, the operator must be trained to operate backhoes. Higher costs will be associated with training.
Question 3
Both of these indicate that they are feasible projects. The company is very profitable from it. They both have positive net present values. Both the internal rate and profitability index exceed 1 of Return on Investment. The discount rate was greater for one project than it was for the other. The profitability index can be used as a basis for deciding where to invest your money. There is a higher profitability index. Personally, however, I’d like to put my money in. They have new benefits and are more tangible than The previous backhoes. You can also do more work. They’re more productive and quicker. They are also easier to maintain.
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