Question

Sensitivity analysis: San Lucas Corporation

San Lucas Corporation is considering investment in robotic machinery based upon the following estimates:

Cost of robotic machinery	$4,000,000
Residual value	300,000
Useful life	10 years

a. Determine the net present value of the equipment, assuming a desired rate of return of 10% and annual net cash flows of $700,000. Use the present value tables appearing in Exhibit 2 and 5 of this chapter.

Net present value $

b. Determine the net present value of the equipment, assuming a desired rate of return of 10% and annual net cash flows of $500,000, $700,000, and $900,000. Use the present value tables (Exhibit 2 and 5) provided in the chapter in determining your answer. If required, use the minus sign to indicate a negative net present value.

Annual Net Cash Flow	$500,000	$700,000	$900,000
Net present value	$	$	$

c. Determine the minimum annual net cash flow necessary to generate a positive net present value, assuming a desired rate of return of 10%. Round to the nearest dollar.

Annual Net Cash Flow $

Answer 1

(a)

Particulars	Amount ($)
Present value of annual net cash flows	$4,301,500
Present value of residual value	$115,800
Total present value	$4,417,300
Amount to be invested	($4,000,000)
Net present value	$417,300

(b) Similar to above:

Annual net cash flow	$ 500,000	$ 700,000	$900,000
Net Present Value	-812,053.46 $	417,300	$1,645,773.38

(c) minimum annual net cash flow necessary to generate a positive net present value, assuming a desired rate of return of 10% = 632,300 $ each year

Please up vote. Thanks!