Rocky Mountain Builders (RMB) prefabricates cabins and storage sheds in a fast-growing part of the country. RMB is considering replacing some of its existing manufacturing equipment now to increase its production capacity and consequent sales. The new equipment also will reduce annual energy costs.

RMB’s CFO has estimated the following information to support the decision.

New equipment cost, including installation ANd traiNiNg .......cccccccccsesessesetevseevecsvessesevanes $126,000 Salvage value of new equipment at the End Of its lifes... ec ccsccscscersesssesessesesssspeuenetucheats 0 New @quipment CSCfUl ITC: irs Baie ee aged ec eer aera aeeo e aet sr gne nen ee ee ee ene 3 years Salvage value of old equipment (equals the old equipment’s net book value).........cc.c $ 6,000 AnnualincreaseimicontniOUtlOmMinaanGiinikess ens cce eee meete ne teeta en enn nee 25,000 Annual CnergycOSt SAVINGS) sais. Mist. «.deucsaceoas soanea ee Meret eee Meare matte aontel ect 29,000 INCOME TAXLPALS. GS hana. cninecssstucedbeitaeaeeas cap ions ede wean eee oe oer SEE Ree 40%

DISCOUMt RATERS Jeo. Fase ss ons caatetuahe Ones api osth acc Re ee Pe eee ane Ra eee 10%

Required READSHEET. Build an Excel spreadsheet to create an analysis similar to the one in Exhibit 14—7 to solve requirements (a)-(c).

a. Net present value using the NPV function.

b. Internal rate of return using the IRR function.

c. Lowest energy cost savings that would give the investment a zero NPV. (Hint: use “Solver” or “Goal Seek.’’)

d. What controllable and uncontrollable factors might affect the new equipment’s energy cost savings