Cash flow analysis

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Using the chart of cash revenues and costs, read and understand the cash flow analysis results. Then provide your decision on whether to make the purchase or not. You will frame this recommendation in a 2-minute pitch to your boss, the CEO of the organization. Record your 2-minute pitch as an audio recording and be persuasive, providing solid evidence for your conclusion on whether to purchase the equipment or not.

Cash Revenues and Costs:

012345
  1. System cost
($2,000,000)
  1. Installation expenses
(500,000)
  1. Total Cost
($2,500,000)
  1. Net revenues
$750,000$787,500$826,875$868,219$911,630
  1. Labor costs
(60,000)(63,000)(66,150)(69,457)(72,930)
  1. Maintenance cost
(150,000)(157,000)(165, 375)(173,644)(182,326)
  1. Supplies
(30,000)(31,500)(33,075)(34,729)(36,465)
  1. Net operating income
$510,000$535,500$562,275$590,389$619,908
  1. Salvage value
750,000
  1. Net cash flow
($2,500,000)$510,000$535,500$562,275$590,389$1,369,908

 

Profitability Measures:

Net present value: $82,493

Internal rate of return = 11.1%