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08 Investment appraisal > Pay-back period - Pg. 100

100 FInAnCIAl MAnAGEMEnT FoR non-FInAnCIAl MAnAGERS Year 0 Years 1­5 Years 1­5 Year 5 Year 5 Purchase price Contribution 100 boats @ 2,000 Skilled operatives 1,000 @ 20 Scrap value new machine Scrap value old machine ­400,000 +200,000 per year ­20,000 per year +20,000 +6,000 It is this relevant cash flow that will be used to appraise the investment. The original cost of the old moulding is a past cost and is not relevant to the decision so it is ignored. The benefit of 6,000 for scraping the old moulding has been taken into account since the old moulding could have continued to be used.