Question

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1. Determine the payback period for an investment. 2. Evaluate the acceptability of an investment project using the net present value method 3. Evaluate the acceptability of an investment project using the internal rate of return method. 4. Compute the simple rate of return for an investment. 1 Laurman, Inc. is considering the following project: 2Required investment in equipment 3 Proiect life 4 Salvage value 2,205,000 225,000 6 The project would provide net operating income each year as follows 7 Sales 8Variable expense:s 9 Contribution margin 10 Fixed expenses: 11Salaries, rent and other fixed out-of pocket costs 12Depreciation 13 Total fixed expenses 14Net operating income 15 16 Company discount rate 2,750,000 1,150,000 520,000 350 870 18% 18 1. Compute the annual net cash inflow from the projedct 19 20 2. Complete the ta 21 ble to compute the net present value of the invest ment Year(s) 23 24 Initial investment 25 Annual cost savings 26 Salvage value of the new machine 27 Total cash flow:s 28 Discount factor 29 Present value of the cash flows 30 Net present value 31 32 Use Excel's PV function to compute the present value of the future cash flows 33 Deduct the cost of the investment 34 Net present value Now 7 1.000 36 3. Use Excel's RATE function to compute the project's internal rate of return 37 38 4. Compute the project's payback period. 39 405. Compute the project's simple rate of returr 41 42 years

Answer 1

solu hon Given da ta YeautyCd Ave」hncar in equipment ,52,2051000 子 Salvage value 22. S1000 sale 50, 00 0 Vara ble epenses ed epenses 1SO, 000 320 000 3J01 00 O 87000 Total fiied expenJe, 280 000 Net opeang fncome a201000 t 3s0 00 630, 000

(ulaVS 0 i 6 361000 salvage value of new $22 / o00 Total cosh fbu2,2050630,000 2251000 2. 701633 present value Anqual coy Saving salvage value α 〈Neu) G30100 0 2 S006 ma cine 1otal cash ows 7

3 let Presen valw of cal culak profet nkrnal ak of rekum. pa hcularS 2,20S1000 salvage value 22 5L000 Net annual tash flow」 hon He 6301000 205000 project lefe solvage value 225000 unual tah 630000

ay back ptod: back eno annual ne cash ows we have 2120S1 000 6361 00 0 pay bact pevod 3s years prsemple» simple ate of vetunecome x100 * lb) 220000-2251000