Anewpowerlinewillcost$100,000toinstall,withpowercostsexpectedtobe$1000 peryearforthefirst2years,$800foryears3and4and$600foryear5and$400for year6.Sincethesiteistemporary,itwillbeabandonedin6years.Itwillcost$5000to dismantlethepowerlinesbutthewastecanbesoldforasalvagevalueof$6000. Tabulateordrawtheappropraitecashflowforthesituuationabove.
Question
Anewpowerlinewillcost1000 peryearforthefirst2years,600foryear5and5000to dismantlethepowerlinesbutthewastecanbesoldforasalvagevalueof$6000. Tabulateordrawtheappropraitecashflowforthesituuationabove.
Solution
Here is the cash flow table for the situation described:
| Year | Cash Flow ($) |
|---|---|
| 0 | -100,000 |
| 1 | -1,000 |
| 2 | -1,000 |
| 3 | -800 |
| 4 | -800 |
| 5 | -600 |
| 6 | -400 + 6,000 - 5,000 = 600 |
Please note that in year 0, the cost is 1,000 per year. For years 3 and 4, the cost is 600. For year 6, the cost is 5,000 for dismantling the power lines, but there is a gain of 600.
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