A manufacturing company invest $40,000 in a new piece of equipment. Operating expenses for this new piece of equipment is estimated to be $2,000 starting EOY 1 and increasing by $100 per year for the next addional years. Additional revenues after placing these pieces of equipment in-service are projected it be $10,000 the first year (EOY 1) and remaining constant for 4 additional years. After that, additional revenue is expected to increase to $12,000 at EOY 6 and increase at the rate of 3 percent per year over the next 4 years. At the end of 10 years the piece of equipment will be sold for $10,000. The nominal rate of interest for all years is 15%.
Draw a cash flow diagram from the company's perspective.
What is the present value (t=0) dollars for all cash flows? Did the purchase and operation of this piece of equipment over 10 years provide profit or loss to the company?
What is the uniform series of cash flow for the years 1 through 10 that is equivalent to all the cash flows over the ten year period?