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The Present Value of Two Solutions for a Coffee Company

A coffee company is evaluating the with-in plant distribution system for its new roasting, grinding, and packing plant. The two alternatives are 1) a conveyor system with a high initial cost, but low annual operating costs and 2) several forklift trucks, which costs less, but have considerably higher operating costs. The decision to construct the plant has already been made, and the choice here will have no effect on the overall revenues of the project. The cost of capital for the plant is 8%, and the project's expected net costs are listed as follows:

YEAR Conveyor Forklift

0 ($500,000) ($200,000)

1 ($120,000) ($160,000)

2 ($120,000) ($160,000)

3 ($120,000) ($160,000)

4 ($120,000) ($160,000)

5 ($20,000) ($160,000)


A.) Is there a way to get present value of each without using Excel? If so, I need to know how and the solution.

Solution Preview

Present Value = Initial Investment + sum of [(future value)/ (1+ rate)^year]

For the conveyor belt,

Present Value = -$500,000 + [ -120,000 / (1+8%)^1 - 120,000/(1+8%)^2 - 120,000/(1+8%)^3 - 120,000/(1+8%)^4 - 20,000/(1+8%)^5] (note: ...

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