It is proposed that you conduct a study that determines whether it is appropriate to renew a team of the company FINIS SA. For another more modern one that would allow to reduce the operating costs. The economic service life for both equipment is four years. Below are the values of the teams with their expected annual revenues and costs.

Old equipment:
-Sale value today: $10,000
-Annual operating cost: $500
-Annual revenue: $5,500.
-Sale value within four years: $7,000.

New equipment:
-Purchase value (investment): $16,000
-Annual operating cost: $200
-Annual revenue: $8,500
-Sale value within four years: $9,000

The purpose of this study is to determine the desirability of effecting the change through the application of cash flows.

Note:
- Consider depreciation, applying the one you deem appropriate and arguing why you chose it.
- The interest rate is 10%.
- A VAT of 19% must be considered.

Determine:
a) Cash flow, VAN
b) Argue viability of proposals.

Answer rating: 100% (QA)

a The cash flow for the old equipment would be as follows Year 1 10 000 5 500 500 0 Year 2 0 5 500 5... View the full answer