Guy Wood Lumber Inc. is considering the purchase of a new lathe machine. The new lathe will cost $30 000, have an eight-year life, and create cost savings of $5 000 per year. The new lathe will require $700 of maintenance each year. Guy Wood Lumber Inc. uses a discount rate of 9 per cent. The annuity figure of 9 per cent for 8 years is 5.538
a. Compute the net cash flow per year.
b. Compute the net present value of the lathe.
c. Determine the payback period.

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- anonymous

ok it is ready .

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- anonymous

maybe there were some little difference between the ways of calculating of PV,Due to floating point

- GoldRush18

ok thanks im going through it now

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- anonymous

differences in result.

- GoldRush18

why are they raised to a power?

- anonymous

it is a very fundamental question .
A dollar today is worth against the next year. Due to inflation and other reasons (risks).
So with that equation, decrease the value of revenues of the following years to get the present value of them.
\[PV = A \times (1 - (1 + r)^{n})/ r\]
r = discount rate and n = years

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