Question

Please, answer with formulas.

K . HOME FILE Calibri Comparison of Capital Budgeting Methods - Excel INSERT PAGE LAYOUT FORMULAS DATA REVIEW VIEW - 11-AA Wrap Text V - A Merge & Center. $. % . Conditional Formatas Cell ** Formatting Table Styles Font Alignment Number Styles X Laurman, Inc. is considering the following project: Insert Delete B I 12.5 points Cells eBook Print References 1 Laurman, Inc. is considering the following project: 2 Required investment in equipment 3 Project life 4 Salvage value 1,750,000 5 years 225.000 2,750,000 1.600.000 1,150.00 6 The project would provide net operating income each year as follows: 7 Sales Variable expenses Contribution margin 10 Fixed expenses Salaries, rent and other fixed out of pocket costs 12 Depreciation 13 Total fixed expenses 14 Net operating income 520,000 350,000 870.000 290.000

Answer 1

$ Facts : Initial Investment Project Life Salvage Value Cost of Capital 17,50,000 5 Years 2,25,000 18.00% $ Amount ($) $ 27,50,000 $ 16,00,000 $ 11,50,000 1. Compute the Net Annual Cash Flow for the Project: Particulars $ Sales Less : Variable Expenses Contribution Less : Fixed Expenses Salaries, Rent and other out-of-pocket Costs $ 5,20,000 Depreciation $ 3,50,000 Total Fixed Costs Net Operating Income Add : Depreciation Net Annual Cash Flow $ $ $ $ 8,70,000 2,80,000 3,50,000 6,30,000 4 2. Compute the Net Present Value of the Project : Particulars Net Cash Flow (Including Salvage Value) $ -17,50,000 Discount Factor 1.0000 Present Value of Cash Flow $ -17,50,000 Net Present Value $ 3,18,467 $ 6,30,000 $ 0.8475 5,33,898 $ 6,30,000 $ 0.7182 4,52,456 $ 6,30,000 $ 0.6086 3,83,437 $ 6,30,000 $ 0.5158 3,24,947 $ 8,55,000 0.4371 3,73,728 $ 3. Calculation of the NPV using Excel's NPV Function : Particulars Amount ($) NPV of the Cash Flows from Year 1 - 5 $ 20,68,467 Less : Cost of Investment $ -17,50,000 Net Present Value $ 3,18,467 Accept / Reject ACCEPT

4. Calculation of the IRR using Excel's IRR Function : Particulars Amount ($) 25.48% Accept / Reject ACCEPT IRR

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1750000 Facts : Initial Investment Project Life Salvage Value Cost of Capital 5 Years 225000 0.18 Amount ($) 2750000 1600000 =D10-D11 1. Compute the Net Annual Cash Flow for the Project: Particulars Sales Less : Variable Expenses Contribution Less : Fixed Expenses Salaries, Rent and Other out-of-pocket Costs Depreciation Total Fixed Costs Net Operating Income Add : Depreciation Net Annual Cash Flow 520000 350000 =SUM(C14:C15) =D12-D16 =C15 =SUM(D17:018) 2. Compute the Net Present Value of the Project: Particulars Net Cash Flow (Including Salvage Value) Discount Factor Present Value of Cash Flow Net Present Value O =-C3 =1/((1.18)^C22) =C23*C24 =SUM(C25:H25) =$D$19 =1/((1.18)^D22) =D23*D24 =D23 =1/((1.18)^E22) =E23*E24 =E23 =1/((1.18)^F22) =F23*F24 4 =F23 =1/((1.18)^G22) =G23*G24 =G23+C5 =1/((1.18)^H22) =H23*H24 3. Calculation of the NPV using Excel's NPV Function : Particulars NPV of the Cash Flows from Year 1-5 Less : Cost of Investment Net Present Value Accept / Reject Amount ($) =NPV(C6,D23:H23) =C23 =SUM(C30:C31) ACCEPTI 4. Calculation of the IRR using Excel's IRR Function : Particulars IRR Accept / Reject Amount ($) =IRR(C23:H23) ACCEPTI