OEquipment: 500,000

Life Span: 10 years

Salvage Value: 50,000

Machine: 300,000

Life Span: 8 years

Salvage Value: 20,000

Interest Rate: 10%

For 5 years

Rate of Return:

Annual Revenue: 800,000

Annual costs:

Depreciation:

Equipment:

500,000−50,000
d=
(1+0.1)5−1
0.1
d=73,708.866
Machine:

300,000−20,000
d=
(1+0.1)5−1
0.1
d=45,863.2946
Labor & Salaries 60,000

Maintenance 5,000

Utilities 24,000

Taxes 27,720

Total Annual Cost 236,292.1606

Net Annual Profit 563,707.8394

563,707.8394
Rate of Return = x100%
700,000+ 500,000+300,000+450,000
ROR=28.908 %
By Annual Worth Method

Annual Revenue: 800,000

Annual costs:

Depreciation:

Equipment:

500,000−50,000
d=
(1+0.1)5−1
0.1
d=73,708.866
Machine:

300,000−20,000
d=
(1+0.1)5−1
0.1
d=45,863.2946
Labor & Salaries 60,000

Maintenance 5,000

Utilities 24,000

Taxes 27,720

Interest on Capital (1,950,000x0.28908) =563,706

Total Annual Cost 799,998.1606

Excess 1.8394

By Present Worth Method

73,708.866

45,863.2946

800,000 800,000 800,000 800,000 800,000

0 1 2 3 4 5

Cash flow diagram of cash inflows

PW of cash inflows = 800,000 (P/A, 10%, 5) + 119,572.16 (P/F, 10%, 5)

= 800,000 (6.1051) + 119,572.16 (0.6209)

= 4,958,322.354

Annual costs (excluding depreciation) = 60,000+ 5,000+ 24,000+ 27,720

= 116,720

0 1 2 3 4 5

116,720 116,720 116,720 116,720 116,720

1,950,000

Cash flow diagram of cash outflows

PW of cash outflows = 1,950,000 + 116,720 (6.1051)

= 2,662,587.272

By Future Worth Method

FW of cash inflows = 119,572.16 + 800,000(F/A, 10%, 5)

= 119,572.16 + 800,000(6.1051)

= 5,003,652.16

FW of cash outflows = 116,720 (F/A, 10%,5) + 1,950,000( F/P, 10%,5)