From the course: Accounting Foundations: Making Business Decisions Using IRR and NPV
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Cash flows for Lily Company Machine
From the course: Accounting Foundations: Making Business Decisions Using IRR and NPV
Cash flows for Lily Company Machine
- All right, let's sink our teeth into a more complex NPV and IRR analysis. - Absolutely. Let's include working capital and income taxes and appreciation. - Hold on chief, not so fast. Let's start with a basic example and then build it up to include the things that you mentioned. - Okay, good call. All right, so Lily Company is considering purchasing a machine. The associated cash inflows and outflows are as follows. - [Man] Cost of the machine is $100,000. - [Man] Cash revenues from the output from the machine are expected to be $70,000 per year for five years. - [Man] And cash expenses are expected to be $30,000 a year for five years. - [Man] At the end of five years, the machine is expected to have a salvage value of $10,000. - [Man] And the required rate of return on this project, 10%. - [Man] All cash flows occur at the end of the appropriate year, except for the $100,000 initial cost. - Now, we are going…
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