You will need to make a purchase decision on a major piece of equipment. To do this, you will need to consider several scenarios based on revenue generation and the equipment's future resale value. The equipment has a 10-year life span and a resell value of 10 years, as specified.
Given an interest rate of 5%, determine the best choice of equipment purchases by calculating the Present Value of the equipment and the present value of the revenue generation based on the equipment. The company has the following offerings – they will repurchase the equipment at the amount specified by taking a share of the annual revenue generated. The guaranteed revenue generated for you is below (they take any extra income).
If the original purchase price is $10,000 you must determine if it is a good investment. You must also calculate risk if interest rates increase or decrease. This should be included as part of your recommendation in your report. (Remember you will be submitting an engineering report).
COST SCENARIOS
| Resale Amount at 10 Years | Annual Revenue Generated |
| 10,000 | 500 |
| 9,000 | 600 |
| 5,000 | 1,000 |
| 3,000 | 1200 |
| 0 | 1500 |
Write a program that allows you to enter the interest rate (once), use the resale value and annual revenue as shown, and calculate the PV of the future resale, the PV of the revenue stream, and the total. The program should output a table of all the results or you should be able to take the results and put into a summary table for your report.
TABLE FIELDS FOR OUTPUT
| Resale Amount | PV of Resale | Annual Revenue | PV of revenue | Total PV | Profit or Loss @ 5% |
| 10000 | 500 | ||||
| 9000 | 600 | ||||
| 5000 | 1000 | ||||
| 3000 | 1200 | ||||
| 0 | 1500 |
The engineering report should include each of the scenarios indicating the best scenario. The interest rate used in the analysis is 5%; however, you should also include in the report an analysis of risk for both higher and lower interest rates and what these do to the investment. You can do this by simply reproducing the table at a higher interest rate and a lower interest rate. You should interpret the results (fluctuations in interest rates are a known, quantifiable risk).
This is a typical franchise model for equipment funded under a company (like an ice cream machine); a specific revenue is guaranteed, and the user (you) either gets a guaranteed income for operating the equipment or a percentage based on sales. It is up to you to determine if the deal is good for you or is not.
Report Format (Details at Submission Guidelines (Engineering Reports) )
Cover - Name/Date/Class/Assignment #
Problem Statement - Copy/Paste and then modify to state problem
Methodology - The approach to the problem, not code, equations and explanation here
Results -Be sure to answer the problem asked in the problem statement
Conclusion - This can be short, any additional notes you want to make here
Appendices - Code or any additional information here