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Net Present Value Question
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Hi, really need help, and here's my last resort...
Machine A NPV : 36062; Life : 5yr
Machine B NPV : 26038; Life : 3yr
Cost of Capital : 6%
Initial Outlay for A : 15000 Cost of running Machine A : 4000/yr
Initial Outlay for B : 10000 Cost of running Machine B : 6000/yr
NPV : Net Present Value
Extra info : Inflows and outflows are fixed over the years, and Inflows are the same for A and B, but unknown.
The rental charges for Machine A & B are to be found out.
(i.e. Inflows - Outflows consisting rental charges and running cost)
Hope it's not too hard for you... I can't solve it.. just too confusing.
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Not the answer, but a hint on how to solve it.........set it out in a spreadsheet like a normal NPV calculation, i.e. Expenditure per year minus inflows per year, all discounted at the cost of capital. The sum of this is the NPV calculation. Therefore, if you work backwards from the final calculation, you can work out the rental charges..........see how you do!!
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