ok - lets assume that all cashflows occur at the end of the year. If the question is not clear on this you need to state it in the answer.
Thus we have:
- the initial cost of machinery - lets say £1,000
- annual labour cost savings - lets say £400 per annum (I'm assuming any inflation is accounted for in the cost of capital figure of 8%)
- scrap prices after 5th year - lets guess £200
- cost of capital being 8%
So to work out the cashflows we work out which year they occur in. The initial cost will be in year = 0 - ie the start of the project. At year 1, 2, 3, 4 , and 5 there are savings of £400. At year 5 you get the scrap value of £200.
So:
year - 0 cashflow = (£1,000)
year -1 cashflow = 400
year -2 cashflow = 400
year -3 cashflow = 400
year -4 cashflow = 400
year -5 cashflow = 400 +200
Do you know how to apply the cost of capital?