Question

answer

Comparison of Capital Budgeting Methods 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 FILE HOME INSERT PAGE LAYOUT FORMULAS DATA REVIEW VIEW LEH Sign In в r u . B- 5- Number Formation 1 Format as Styles. Alignment Cells Editing . Font Laurman, Inc. is considering the following project: red investment in equipment 2,205,000 3 Project life 225,000 2,750,000 1,600,000 1,150,000 8 Variable expenses 10 Fixed expenses: Styles リ A6 The project would provide net operating income each year as follows: X 'V J : Laurman, Inc. is considering the following project: 2 Required investment in equipment 3 Project life 2,205,000 225,000 The project would provide net operating income each year as follows: S 2,750,000 1,600,000 1,150,000 10 Fixed expenses 11 Salaries, rent and other fixed out-of pocket costs 12 13 Total fixed expenses 14 Net operating income 15 16 Company discount rate 520,000 350,000 870,000 280,000 18% 18 1. Compute the annual net cash inflow from the project. 19 20 2. Complete the table to compute the net present value of the investment Year(s) 1-7 Now +100% 19 20 2. Complete the table to compute the net present value of the investment Year(s) Now 24 Initial investment 25 Annual cost savings 26 Salvage value of the new machine 27 Total cash flows 28 Discount factor 29 Present value of the cash flows 30 Net present value 1.000 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 36 3. Use Excel's RATE function to compute the project's internal rate of return 38 4. Compute the project's payback period. 40 5. Compute the project's simple rate of return. Sheet1. 100% 圈回

Answer 1

, Homeert Page Layout FormulasData Review View s Cut ta copy ▼ Σ AutoSum ー E " ゴWrap Text в 1 프 . -. 5-A-ーー 逻锂函Merge & Center. $, % , 弼,8 Conditional Format . Cell Insert Delete Format Sort &Find & 2 ClearFe Select Edting Format Painter Formatting▼ as Table-styles ▼ ▼ ▼ Clipboard Number Cells Alignment A1 A. 2 Required Investment in equipment 3 Project life 4 Salvage value 5 6 Projected data 7 Sales 8 variable expense 9 contribution margin 10 Fixed expense 11 salaries, rent and other fixed costs 12 Depreciation 13 Total Fixed costs 14 Net opearting income 15 16 Company Discount rate 17 18 Annul net cashflow From Project l ‘ト. INER IT . Sheet108ASPeettgy Sheet1 10. Sheet1 1 1 . Sheet1 12, Sheet1 13 2,205,000 225,000 2,750,000 1,600,000 1,150,000 520,000 350,000 870,000 280,000 18% 630,000 Depreciation is Non-cash expense. So not Sheet1 14 Sheet1 15 Ready 13096 01:03 A x 30-11-18 Search the web and Windows

, Homeert Page Layout FormulasData Review View E AutoSum Wrap Text Copy Format Painter B 1 u Paste . 9-Δ. 函Merge & Center, 'al.o Conditional asor bat styles* Insert Delete Format Sort & Filter Select ーー 逻锂 $-% , Clear, 2 Clear Formatting ▼ as Table-styles ▼ ▼ ▼ Clipboard Number Cells Edting Alignment Net present value A34 17 18 Annul net cashflow From Project 19 20 Net present value of investment 21 630,000 Depreciation is Non-cash expense. So not deduced from contribution margin. Year(s) 1-7 Present value factor @ 18% 0.847457627 0.71818443 0.608630873 0.515788875 0.437109216 0.370431539 0.313925033 3.811527593 Year 23 24 Initial investment 25 Annual cost saving 26 Salvage value of new machine 27 Total cash flows 28 Discount factor 29 Present value of cashflow 30 Net present value 31 32 Present value of cash flow 33 Less: cost of investment 34 |Net present value l ‘ト. INER IT . Sheet108ASPeettgy Sheet1 10. Sheet1 1 1 . Sheet1 12, Sheet1 13 Now (2,205,000) 630,000 225,000 225,000 0.313925 70,633 4 (2,205,000) 630,000 1 3.811528 (2,205,000) 2,401,262 6 Total 266,896 2,471,896 2,205,000 266,896 Sheet1 14 Sheet1 15 Ready 13096 01:03 A x 30-11-18 Search the web and Windows

, Homeert Page Layout FormulasData Review View s Cut aCopy E AutoSum Wrap Text в 1 프 . -. 5-A-ーー 逻狸函Merge & Center. $, % , 弼,8 Conditional Format . Cell Insert Delete Format Sort &Find & 2 ClearFe Select Edting Format Painter Formatting, as Table-styles, , ψ Clipboard Number Cells Alignment A42 A. 25 Annual cost saving 26 Salvage value of new machine 27 Total cash flows 28 Discount factor 29 Present value of cashflow 30 Net present value 31 32 Present value of cash flow 33 Less: cost of investment 34 Net present value 35 36 Project's Internal rate of return 37 38 Project's Payback period 39 40 Project's Simple rate of return 41 42 l ‘ト, INEN IT . Sheet108ASPeettgy Sheet1 10. Sheet1 1 1 . Sheet1 12, Sheet1 13 0.608630873 0.515788875 0.437109216 0.370431539 0.313925033 3.811527593 630,000 225,000 225,000 0.313925 70,633 4 (2,205,000) 630,000 1 3.811528 (2,205,000) 2,401,262 6 Total 266,896 2,471,896 2,205,000 266,896 22.0449% 3.50 Years 12.6984% Sheet1 14 Sheet1 15 Ready 13096 01:03 A x 30-11-18 Search the web and Windows

Homeert Page Layout FormulasData Review View E AutoSum ー E " ゴWrap Text aCopy в 1 프 . -. 5-A-ーー 逻锂函Merge & Center. $, % , 弼,8 Conditional Format . Cell Insert Delete Format Sort &Find & 2 ClearFe Select Edting Format Painter Formatting▼ as Table-styles ▼ ▼ ▼ Clipboard Number Cells Alignment Salvage value of new machine 14 Net opearting income 15 16 Company Discount rate 17 18 Annul net cashflow From Project 19 20 Net present value of investment 21 =D9-D13 0.18 =D9-C11 Depreciation is Non-cash expense. So not deduced margin Year(s) Present value factor @ 18% Year 23 24 Initial investment 25 Annuaot saving 26 Salvage value of new machine 27 Total cash flows 28 Discount factor 29 Present value of cashflow 30 Net present value 31 Now -H23/1.18 -H24/1.18 -H25/1.18 -D18 -C4 4 -SUM(824:B26) SUM(C24:C26) SUM(D24:D26) 126/1.18 -H27/1.18 H28/1.18 SUM(H23:H29) -PV(C16,7,1)H29 -C27*C28 6 -B27*B28 -SUM(B29:D29) -D27 D28 Total 4SheetC7, Sheet108 heette r Sheet1 10 . Sheet1 1 1 , Sheet1 12- Sheet1 13 . Sheet1 14 ウ Sheet1 15 Ready 01:05 A x 30-11-18 Search the web and Windows

Homeert Page Layout FormulasData Review View Σ AutoSum Wrap Text aCopy в 1 프 . -. 5-A-ーー 逻狸函Merge & Center. $, % , 弼,8 Conditional Format . Cell Insert Delete Format Sort &Find & 2 ClearFe Select Edting Format Painter Formatting▼ as Table-styles ▼ ▼ ▼ Clipboard Number Cells Alignment A41 24 Initial investment 25 Annual cost saving 26 Salvage value of new machine 27 Total cash flows 28 Discount factor 29 Present value of cashflow 30 Net present value 31 32 Present value of cash flow 33 Less: cost of investment 34 Net present value 35 36 Project's Internal rate of return 37 38 Project's Payback period 39 40 Project's Simple rate of return 41 -H23/1.18 -H24/1.18 -H25/1.18 -H26/1.18 -H27/1.18 -H28/1.18 SUM(H23:H29) -D18 -C4 4 -SUM(824:B26) SUM(C24:C26) SUM(D24:D26) =-PV(C167, 1) -C27*C28 -H29 -D27 D28 6 B27*B28 -SUM(B29:D29) Total -Pvic 16,7,C27,D270) -D32-D33 -RATE(7,C27,B27,D27,0) -C2/D18 Years -D14/C2 INER I . Sheet108ASPeettgy Sheet1 10. Sheet1 1 1 , Sheet1 12. Sheet1 13. Sheet1 14 Sheet1 15 Ready 01:05 A x 30-11-18 Search the web and Windows