The owner of the company you work for has presented you with data about a potential investment. Machine Original outlay

Question

The owner of the company you work for has presented you with data about a potential investment. Machine Original outlay (beginning of Year 1): $220 000 Expected net cash inflow: Year Amount 1 2 $45 000 $45 000 $55 000 $50 000 ??? 4 Salvage value (expected in year 4) $105 000 The owner of the company estimates the cost of capital to be 7%. The company has enough funds to meet all capital expenditure requirements. Required: Applying the concept of a Life Cycle Analysis, list and explain three other factors that should be included for further investigation within your investment appraisal above (5 marks).

Help In Homework · Accepted Answer

Life Cycle Analysis is a systematic approach to evaluate any investment decision. Economical analysis of total cost and benefits will be over the lifecycle of the assets. Computing Net Present value and if there is positive NPV then only such investment will be accepted. Annual income, expenses and salvage value to be determined. Life Cycle Analysis will also considered some other pros and cons : (i) Environmental impact of the investment. (ii) Job creation to the society (iii) Social benefits analysis. Economical Life Cycle Analysis: Year Cash Inflow Cash outflow Net Cashflow PVF @ 7 % Discounted Value (a) (b) (c ) (d=b-c) (e) (f=d x e) - - 2,20,000 -2,20,000 1.00 -2,20,000 1 45,000 - 45,000 0.935 42,056 2 45,000 - 45,000 0.873 39,305 3 55,000 - 55,000 0.816 44,896 4 1,55,000 - 1,55,000 0.763 1,18,249 Net Present Value 24,506

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The owner of the company you work for has presented you with data about a potential investment

Expert Solution

Archived Solution

Life Cycle Analysis is a systematic approach to evaluate any investment decision.
Economical analysis of total cost and benefits will be over the lifecycle of the assets.
Computing Net Present value and if there is positive NPV then only such investment
will be accepted. Annual income, expenses and salvage value to be determined.

Life Cycle Analysis will also considered some other pros and cons :
(i) Environmental impact of the investment.
(ii) Job creation to the society
(iii) Social benefits analysis.


Economical Life Cycle Analysis:
Year	Cash Inflow	Cash outflow	Net Cashflow	PVF @ 7 %	Discounted Value
(a)	(b)	(c )	(d=b-c)	(e)	(f=d x e)
-	-	2,20,000	-2,20,000	1.00	-2,20,000
1	45,000	-	45,000	0.935	42,056
2	45,000	-	45,000	0.873	39,305
3	55,000	-	55,000	0.816	44,896
4	1,55,000	-	1,55,000	0.763	1,18,249
Net Present Value	24,506