A manufacturing company invests $100,000 in a new piece of equipment. Operating expenses for this new piece of equipment is estimated to be $4,000 starting EOY1 and increasing by $200 per year at the EOY2 and for the next 9 additional years. Additional revenues after placing this piece of equipment in-service are projected to be $20,000 the first year (EOY01) and remaining constant for 4 additional years. After that, additional revenue is expected to increase to $22,000 at EOY6 and increase at the rate of $100 per year from EOY7 through EOY10. 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 12%.
a. Draw a cash flow diagram from the company's perspective. (Neatness and accuracy count)
b. What is the present value dollars for all cash flows? (Move all dollars to time=O)
c. What is the uniform series of cash flows for years 1through 10 that is equivalent to all the cash flows over the ten year period?