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"(1-1) An oil field transfer pump having a useful life of five years is purchased for...

"(1-1) An oil field transfer pump having a useful life of five years is purchased for $10,000. The pump will generate an incremental $15,000 in the first year. However, the revenue will decrease $1000 per year in each of the next four years. Operating cost will be $5000 in the first year but will increase $1000 per year in each of the following four years. a) Calculate BFIT net cash flow each year for investment. Draw the cash flow diagram"

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Answer #1

BFIT per year = Revenue - operating cost

Tabulating cash flows

Yrs initial cost Annual operating cost Annual income Net Cash Flow
0 -10,000.00 -10,000.00
1 -5000 15,000.00 15000 - 5000 = 10,000.00
2 -6000 14,000.00 14000 - 6000 = 8,000.00
3 -7000 13,000.00 13000 - 7000 = 6,000.00
4 -8000 12,000.00 12000 - 8000 = 4,000.00
5 -9000 11,000.00 11000 - 9000 = 2,000.00

Cash flow diagram

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