Discounted lifecycle costing - help please

flower

Question 2.3 a on DEC 08 PEV. Can anyone explain where the -£20,000 comes from in year 5.
It states residual value of £50,000 at end of 5 years.

Craig9

You're trying to work out the Net present cost in this question and not value, so the costs will be in positive figures and any revenue in negatives. So it says the machine last for 5 years and you are given the discounted rates.

Year 0 the machine shows a purchase price of 300,000.

It then says for the next 5 years the annual costs are 30,000 and in year five there is a residual value of 50,000

So year 1 - 30,000
year 2 - 30,000
year 3 - 30,000
year 4 - 30,000
year 5 - this is the final annual cost of 30k but you are getting a residual value of 50k, so you have made 20k (50-30) in year five and this is shown as a negative figure because this 'profit' can be taken off the costs incurred in the first 4 years