PEV June Exam 2009 - Lifecycle Costing Question

Nicola1106

Hi,

Can anyone help with this....

I have been going through the past PEV exam paper and have an issue with the lifcycle question for purchasing the machinary.
I do not understand why the £40,000 is charged for 4 years and in year 5 £160,000 which the answer then shows the two netted together giving a difference of £16400.
Can anyone explain why in year five there are 4 years @ £160,000?
I do understand that the £40,000 are running costs.
This was part of ECR but i can not find any of my work/books as I studied ECR 3 years ago.

Hope someone can help.....

SandyHood

I've looked at my answer
£40,000 in years 1, 2, 3, and 4 is a cash outflow
whereas £160,000 in year 5 is a net cash inflow (made up of the cash coming IN from the sale of the machine and the cash going out to pay the running costs)

see these 2 points in the question
• annual running costs of £40,000 for the next five years, paid annually in arrears
• a residual value of £200,000 at the end of the five years