I have the following question and solution below. What I don't understand is why is the 100,000 seen as savings/revenue when clearly it is coming out of pocket? Additionally, the monthly loan payment was calculated to be 3,108/month. Since we are including this in the cash flow diagram along with the 240,000 (plus 100,000 cash payment) purchase, isn't that counting the purchase twice?
Question: Your company is considering the purchase of new earth moving equipment. The total purchase is \$240,000 and we pay with \$100,000 cash and borrow the rest. (12% per year nominal, compounded monthly for 5 years). The machines last for 7 years and will be worth \$35,000 at the end of 7 years. The machines will save approximately \$20 per ton of dirt moved. Operating costs for the equipment are \$500 per month. At the end of year 3, you will have to do an overhaul and that costs \$30,000. Assume that MARR is 1.5% per month and ignore the effect of taxes and depreciation.
Solution:
