Is it Worthwhile to Set Up an ATM in a New Location?

Given the following data:

Initial investment = $80,000

Installation cost = $20,000

k = 10%

n = 15 years

NCF = $30,000 * $1 per year

Is it worthwhile to set up the ATM in that new location?

Answer:

Setting up the ATM in a new location is indeed worthwhile based on the calculations using the Net Present Value (NPV) method.

To determine whether it's worthwhile to set up the ATM in a new location, we'll use the net present value (NPV) method. NPV is calculated by subtracting the initial investment from the present value of cash flows and the present value of salvage value.

First, calculate the net cash flows (NCF) per year by multiplying $30,000 by $1, which equals $30,000.

Next, calculate the present value of the annuity using the formula: PVA = PMT x [(1 - (1 + i) ^ -n) / i]. In this case, the annuity amount is $30,000 and the interest rate is 10% for 15 years.

Afterwards, calculate the present value of the salvage value, which is $0 since there is no salvage value mentioned.

Finally, calculate the NPV by adding the present value of cash flows to the present value of the salvage value and subtracting the initial investment. If the NPV is positive, then it is worthwhile to set up the ATM in the new location.