Calculate present cost
See this course’s project requirements
An equipment financial decision model with service-equivalent alternatives, timed costs, downtime, residual value and a conditional recommendation.
Keep your working files in your own notebook or software. Save a private description, checklist, and work link in My Proof.
What to include
- A service-equivalence screen with usable capacity and a changed-demand exclusion.
- A dated four-column cash-cost ledger with separate resale and maintenance rows.
- A present-cost table with factors, signed cash flows and final rounding.
- A contribution-based downtime row linked to service and present cost.
- A three-scenario sensitivity table with explicit dependent rows.
- A conditional capital decision brief with calculations and reversal triggers.
Review and revise
Use these criteria to check your work and choose what to improve.
- Service: every candidate is screened against usable demand.
- Finance: dated signed costs and present factors reconcile.
- Risk: downtime/residual scenarios update all dependencies.
- Decision: conditional grounds, triggers and unresolved real terms are explicit.
Want more background?
The idea in everyday life
Original fictional practice. All money is USD. No account, payment, personal record or outside participation is required. A fictional print shop needs 900 usable cutting jobs each year for three years. Buy supplies capacity 1,200, costs 2,400 now plus 200 maintenance at each year end and yields 600 resale at year 3. Lease supplies capacity 1,200, costs 100 now plus 900 at each year end, maintenance included, no resale. Repair supplies capacity 1,000, costs 600 now plus 500 at each year end, no resale. Expected lost jobs/year are buy 20, lease 10, repair 80. Each lost job forfeits 2 contribution; use an 8% annual discount rate and year-end operating costs. Ignore financing/taxes; these are exercise assumptions.
Present cost is a dated weighted sum, not the nominal sum.
Calculate present cost — complete worked case
Present cost is a dated weighted sum, not the nominal sum.
A fictional print shop needs 900 usable cutting jobs each year for three years. Buy supplies capacity 1,200, costs 2,400 now plus 200 maintenance at each year end and yields 600 resale at year 3. Lease supplies capacity 1,200, costs 100 now plus 900 at each year end, maintenance included, no resale. Repair supplies capacity 1,000, costs 600 now plus 500 at each year end, no resale. Expected lost jobs/year are buy 20, lease 10, repair 80. Each lost job forfeits 2 contribution; use an 8% annual discount rate and year-end operating costs. Ignore financing/taxes; these are exercise assumptions.
Original three-year alternatives
Paste at A1.
| AAlternative | BGross jobs/year | CNow | DAnnual end cost | EYear 3 resale | FLost jobs/year |
|---|---|---|---|---|---|
| Buy | 1200 | 2400 | 200 | 600 | 20 |
| Lease | 1200 | 100 | 900 | 0 | 10 |
| Repair | 1000 | 600 | 500 | 0 | 80 |
Copy as plain text
1. 3.1 Calculate
Write the formula for one dated amount and check that t 0 uses factor 1.
You should see: An immediate cost is not discounted.
2. 3.2 Calculate
Calculate each year’s factor using unrounded powers, then multiply signed costs by it.
You should see: Factors approximately 0.925926, 0.857339 and 0.793832.
3. 3.3 Calculate
Sum the discounted rows and round only the final present costs to cents.
You should see: Buy 2,439.12; lease 2,419.39; repair 1,888.55 before downtime.
4. 3.4 Calculate
Use a simple separate check: 110 due in one year at 10%. Divide by 1.10 and explain the result.
You should see: Present cost 100; nominal 110 is a different quantity.
What to finish
A present-cost table with factors, signed cash flows and final rounding.
Watch for this
Discounting a terminal resale for one year or mixing nominal and discounted totals.
How can I tell I understand it?
Verify that your completed present-cost table with factors, signed cash flows and final rounding meets the three lesson-specific checks and retains the supporting original records.
Quick knowledge check
Answer all 3 questions. Get at least 2 right and the lesson completes automatically.
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Pass the check. We’ll save the progress.
Answer all 3 questions above and get at least 2 right. You can review the explanations and try again.
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Sources and further reading
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Source & access notes · checked 2026-10-01
Read discounted cash flow and comparison limits. Course compares present costs for equivalent service, not a promised return.
Access: Public primary page body opened and relevant sections read through the web reader on 2026-10-01; no account required for reading.
Reuse: Original Life Starter cases, datasets and questions; no source exercise or worked dataset reproduced. Links support further reading.
Source & access notes · checked 2026-10-01
Read time value, lump-sum/annuity and timing discussion. Original three-year cost ledger and 8% assumption are supplied here, not source examples.
Access: Public primary page body opened and relevant sections read through the web reader on 2026-10-01; no account required for reading.
Reuse: Original Life Starter cases, datasets and questions; no source exercise or worked dataset reproduced. Links support further reading.
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