E C A Example E Cost of equipment needed Working capital needed Overhaul of equipment in four years Salvage value of the equipment in five years Annual revenues and costs: $60,000 $100,000 $5,000 $10,000 $200,000 $125,000 $35,000 14% Sales revenues Cost of goods sold Out-of-pocket operating costs Discount rate Enter a formula into each of the cells marked with a ? below See Exhibit 13-8 Years 5 3 1 Now Purchase of equipment Investment in working capital Sales Cost of goods sold Out-of-pocket operating costs Overhaul of equipment Salvage value of the equipment Working capital released Total cash flows (a) Discount factor (14 % ) (b) Present value of cash flows (a) x (b) Net present value ? ? ? ? ? ? ? ? t *Use the formulas from Appendix 13B: Present value of $1 Present value of an annuity of $1 where n is the number of years and r is the discount rate (1)'(1-(1/(1+r)n)