NET CASH INFLOW 1

Accounting Assignment Unit 6

Net Cash Inflow

University of the People

BUS 3304 Managerial Accounting

Michael Marslek, Instructor

July 28, 2021

NET CASH INFLOW 2

Net Cash Inflow

a. Ignoring the time value of money, calculate the net cash inflow or outflow resulting from
this investment opportunity.

Timeline Year 0 Year 1 Year 2 Year 3 Year 5

Purchase $(50,000)
Maintenance $(14,000) $(14,000) $(14,000) $(14,000)
Annual
Saving $30,000 $30,000 $30,000 $30,000
Salvage
Value $10,000
Total Cash
In (Out) $(50,000) $16,000 $16,000 $16,000 $26,000

The net cash inflow is equal to the annual savings minus the annual maintenance (Heisinger &
Hoyle, 2012).

$30,000 - $14,000 = $16,000

In Year 4, the salvage value is added to the net cash inflow.

b. Find the net present value of this investment using the format presented in Figure 8.2.

Timeline Year 0 Year 1 Year 2 Year 3 Year 4

Purchase $(50,000)
Price
Maintenanc $(14,000) $(14,000) $(14,000) $(14,000)
e Cost
Annual $30,000 $30,000 $30,000 $30,000
Savings
Salvage $10,000
Value
Total Cash $(50,000) $16,000 $16,000 $16,000 $16,000
In (Out)
PV Factor x 1.0000 x 0.9009 x 0.8116 x 0.7312 x 0.6587
(r=11%)
Present $(50,000) $14,414 $12,986 $11,699 $17,126 $6,225
Value

c. Should the company purchase the blueprint machine? Explain.

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Since the net present value is greater than zero, in this case, it is $6,225, then it would be
advisable for Architect Services, Inc. to purchase the blueprint machine. This means that the
investment would generate a return greater than 11%.
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Resources
Heisinger, K., & Hoyle, J. B. (2012). Managerial Accounting. Creative Commons by-nc-sa 3.0.

https://open.umn.edu/opentextbooks/textbooks/managerial-accounting