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chelle21689's avatar

How do I solve this discounted cash flow analysis?

Asked by chelle21689 (5258 points ) November 29th, 2012

I’m having trouble with the last question of my homework. I hope someone who is good with understands.
Here is the simple chart:
http://sphotos-b.xx.fbcdn.net/hphotos-prn1/66048_4058836515276_936552729_n.jpg|

Question:Assume every desk to be produced for the next 10 years will be made from wood that is cut by the saw that is purchased. Sales of the year the saw is purchased is projected $260,000 in sales and expected to increase 15% per year for 10 years. Use the chart to perform discount cash flow analysis. Now which saw would you CHOOSE and WHY?

Thank you.

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12 Answers

Dutchess_III's avatar

Saw? I’m confused. You only mentioned one saw, and that is the one used to make desks for the next 10 years. So, you use the one you have.

What am I missing, Jellies?

wundayatta's avatar

You total up the costs for each saw for ten years. Then discount the spending to current dollars to make the costs comparable. Then you see which is cheaper. The Kyrobi has much lower operating costs, but much higher initial cost. That’s why discounting into comparable dollars is necessary to see if the operational savings on the Kyrobi actually make that saw cheaper than the Delta. I assume you know the spreadsheet formula for discounting dollars?

chelle21689's avatar

Kyrobi and Delta are two different saws.

chelle21689's avatar

No, I don’t have the spreadsheet formula. :\

chelle21689's avatar

@Wundayatta, do I include the total acquisition costs for the 10 years?

wundayatta's avatar

Yes, the total costs. But you have to discount each year’s cost either forwards or backwards in order to make them even.

chelle21689's avatar

ok, thanks. I’ll try..

Response moderated (Spam)
cazzie's avatar

You have to work out the math on a spreadsheet. I did this for a living. Production accounting and auditing were my two favourite things to do. Some people do crossword puzzles to relax, I did bank account reconciliation.

Dutchess_III's avatar

Can we delete my answer? It was retarded!

wundayatta's avatar

@Dutchess_III You must appeal to the fluther Gods (aka Augustlan) for that.

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