Problem:
A manufacturing company invests $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 additional years. Additional revenues after placing this piece 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%.
Required:
Question 1: Draw a cash flow diagram from the company's perspective.
Question 2: 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?
Question 3: 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? Show your all work and describe in detail.