Question

Short answer question. A student is considering setting up a business, he plans to buy a 3D printer and make 3D selfies. He reckons he can sell 50 3D selfies a year at a profit of £100 each. He thinks the supplies and maintenance of the printer will cost £2,000 per annum and he expects the project to last 5 years, at the end of this period the 3D printer will have a scrap value of £150. What is the maximum, to the nearest pound, that he should pay for the 3D printer? Assume a discount rate of 15%. Note: You do not have interest tables for this question. Show your working.  

Answer 1

The maximum amount that should be paid for the 3D printer can be ascertained by determining the aggregate value of the present value of the annual savings for the 5 years and the present value the scrap value at the end of 5 years

Annual Sales = 50 3D selfies x £100 each = £5,000

Annual supplies and maintenance = £2,000

Annual net cash inflow = £5,000 - £2,000 = £3,000

Particulars	Amount (£)
Annual net cash inflow	£3,000.00
Present Value Annuity Factor 15%, 5 Years	3.352155
Present value of the annual net cash inflows	£10056.47
Salvage Value	£150.00
Present Value Factor 15%, 5 Years	0.497177
Present Value of the Salvage Value	£74.58
Maximum amount that should be paid for the 3D printer [£10056.47 + £74.58 ]	£10,131.05

“Hence, Maximum amount that should be paid for the 3D printer = £10,131.05”