1.

2.

4 EXHIBIT 14-8 The Net Present Value Method-An Extended Example c D E F G 1 Year 2 Now 1 2 3 5 3 Purchase of equipment $ (60,000) 4 Investment in working capital $ (100,000) 5 Sales $ 200,000 $ 200,000 $ 200,000 $ 200,000 $ 200,000 6. Cost of goods sold $ (125,000) S (125,000) $ (125,000) S (125,000) S (125,000) 7 Out-of-pocket costs for salaries, advertising, etc. $ 35,000) S (35,000) S (35,000) S (35,000) S (35,000) 8 Overhaul of equipment $ (5,000) 9 Salvage value of the equipment $ 10,000 10 Working capital released $ 100,000 11 Total cash flows (0) $ (160,000) $40,000 $ 40,000 $40,000 $35,000 $150,000 12 Discount factor (14%) (b) 1.000 0.877 0.769 0.675 0.5925 0.519 13 Present value of cash flows (a) (b) $ (160,000) $ 35,080 S 30,760 $ 27,000 $20,720 S 77,850 14 Net present value (SUM B13:413) $ 31.410 15 16 Note: The discount factors come from Exhibit 148-1 in Appendix 148 17 Exhibit 14-8 Dhot 14-9 Eb 14:10 h 1011 Shoc Source: Microsoft Excel Peris 51 100 22 3% 1516 13 09620952090309350926 099 0909 0.901 0.993 0.885 08770870 0.862 0855 0347 0.84008330826 0.820 081308050.800 2 0925 0907 09900373 0857 0.542 0.826 0312 0.797 07830759 0756 0743 0731 0.7180705 0.694 0.683 0672 0.661 0650 0640 3 3900610540 0.816 0794 0720351 07310712 069306750658 06410.624 0.609 0.593 05790.564 0551 0537 0.5240512 0.855 0523 0792 076307350.708 0683 0659 0636 06130592 0572 0552 0534 0.516 0.499 0482 0.467 0.451 0.437 0422 0450 5 0322 0754 0347 0.70 0.681065010621 059 0587 053 05190497 0.476 0456 0.437 0.419 0402 0.306 0370 0.355 03410328 5 0790 0746 0705 0566 0600 059 054 0535 0507 0.480 0456 0.432 0.410 0.390 0.370 0352 0.335 0.719 0303 0289 02750262 2 0.750 0.710565 0.623 0583 0.547 050 0482 0452 0425 0.400 0.375 0.354 0.333 0314 0295 0279 0263 0.249 0235 0222 0.210 07310577 0.627 0582 0510 0.502 0.467 0434 0404 0376 0351 0.327 03050285 0.266 0.249 0233 0.21 0.204 0.191 01790168 9 07030645 0592 054 0500 0.460 0.424 0.391 0361 0333 0308 0234 0203 0243 0.225 0209 0194 01900567 0.1550144 0.134 10 0.676061405580508 0453 0.422 0.336 0352 0322 0295 0.270 0247 0227 0.208 0191 0176 0562 0.549 0157 0120 0116 0107 11 06500585 0.52047504290393 0.350 0.317 0287 0.261 0237 0.2150195 0.178 0162 0348 0135 0123 0.112 0303 0.094 0.006 12 0.625 0557 0.497044 0.3970356 0.319 0206 0257 0231 0.208 0187 0168 0152 0137 0124 0.112 0102 0.092 0083 0.0760069 0.60105300409 0.415 0.368 0.326 0290 0.250 0229 0204 0182 0163 0445 0.130 0.116 0104 0093 0.004 0.075 0.068 0.001 0055 14 0.5770505 0.412 038 0340 0.299 0.263 0.232 0.205 0.181 0.160 0.141 0.125 011 0.099 0.088 0.078 0.069 0.062 0055 0.049 0.044 0.555 0.481 0411 0.362 0.350275 0229 0.209 0183 0.160 0100 012301080095 0.084 0.074 0.065 0.057 0051 0.045 0.000 0.035 10 0534 0:45. 0.294 0339 0292 0252 021801880363 03410123 0907 0.093 0001 0.07 0.062 0.054 0047 0.042 0.036 0.0320028 0500436 0371 0.311 0.270 02310198 0170 0546 0125 03080093 0.0800069 0.000 0.052 0.045 0.039 0.034 0.030 0.026 0.023 18 0.294 0416 0.350 0296 0.250 0.2120100153 0130 0111 0.095 031 0.06 0.059 0.051 0044 0038 0002 0.025 0.024 0.021 0.013 19 0.475 0.396 0331 02770.232 0194 0164 0038 0:15 0098 0083 0070 0.000 0.051 0.043 0.037 0.031 0.027 0.023 0.020 0.01 0.014 20 0.456 0377 0312 0.258 02150173 01490124010400820073 0.061 0.051 004 0.007 0.031 0.025 0.022 0.0190.096 0.054 0.012 21 0.09 0.359 0294 0.2420199 0164 0.35 01120093 0.077 0.064 0.053 0.0440037 0.031 0.026 0022 0.0180.01 0.003 0.0110.009 22 0.422 0.342 02780226 0184 0.1500123 0.01 0.063 0068 0.056 0.046 0.0380032 0.026 0.022 0.018 0.01 000 0011 0009 0.007 23 0.406 03260262 021101700138 0112 0.0910074 0.000 0.049 0000 0.033 0.027 0022 0.018 0,015 0,012 0010 0.009 0.007 0.006 24 0390 0.3100200197 0150 0128 002 0.002 0.005 0.053 0.00 0.005 0.028 0.023 0.019 001500130010 0.008 0.007 0.005 0.005 25 0375 0.255 02130114 01050116 0.092 0.074 005 0047 0.033 0030 0.024 0.020 0016 0.013 0010 0.009 0.007 0.005 0.005 0.001 6361 0281 0220 012 01350106 0084 0.006 0.053 0042 0.033 0.025 0.021 0.01 0.0% 0.0110.000 0.007 0.006 0.005 0004 0.003 222 0.347 0268 0.207 0.551 0.125 0098 0.076 0060 0.047 0.037 0.029 0023 0.018 0.01 0.01 0.009 0.007 0.000 0.00 0.00 0.003 0.002 20 0333 0255 0196 0150 0.116 0.090 0009 0.054 0042 0033 0.025 0.020 0.0100012 0.00 0.00 0.00 0.005 0.004 0.003 0.002 0.002 29 01321 020 0155 0107 0002 0.063 003 0.0320029 0,022 0.01 0.05 0.0110.008 0.008 0.005 0.001 0.003 0.002 0.002 0.002 30 0.306 0231 014 0131 0.099 0.075 0.057 004 0033 0.025 0.020 0,015 0,012 0.009 0.007 0.005 0.00 0.003 0.003 0002 0.002 0.001 10 0.200 0.2 0.007 0057 00460032 0.02200150011 0.008 0.005 0.00 0.003 0.002 0001 0.001 0.001 0.000 0.000 0.000 0.000 0.000 S88XOWBEX 350 051 201 Period 4 59 100 13 10 15 10 17 199 21 22 23 25 09020952013 09350920 0.90 0.909 0.901 0.890 0.885 0.7 0.870 0.302 0955 0.3470840 0333 0.826 0.820 0813 0.8060300 2 1530 1850 180 108 1736 170 1690 1663 1647 1626 1605158515661547152815091492474 14571440 2775 272 2673 2624 2572 2531 2.487 244 2402 2361 2322 2283 224 2210 2174 2100 2106 2074 2012 2011 1981 1952 1630 3540 3000 1230 3.240 0103102 3037 29742912355 2798 2743 2690 2639 2509 2540 2494 2448 24012362 4.4524329 212 4300 3993 1890 1791 1898 3605 3.517 103) 3352 3.274 21993122 3050 2.991 2926 2064 2003 27452629 5242 5.00 767 02 4.430 355 4231 411 3998 10093734 365 3.589 3698 3.410 3326 3245 3167 3092 3020 2951 12 6.002 570 55 5.259 5205 5033 4.868 4712 4564 4473 4288 416040093.92210123.706 30605 3.50834103327 32423.101 073 621091 5747 51535 5235 540 4908 4799 4009448743444207 40783954 3.837 3726 3619 3.518 3.421 3329 7255 7100 6.102 6515 6.2007 5.995 5.7505537 532851324945477246074451 4300 4363 40313.905 3706367335663463 10 2360 7024710 65655.889 5650 542652155.019 433 4659 4494 43394192 40543.923 3.799 36822571 11 0.780 0300: 2007 7499 200 6.305 6.4956207 5938 5.6875453 5.234 5029483640564456 4327 41 40351.902 3776 3.656 9355 356 354 7536 6.146.492 69945.918 5.660 54215197 4988 4793 4611 403942734127 3.985 3851 3725 9.906 93945 2350 7.904 7487 250 6750 6.424 6122 58425583 5.342 5.118 4910 47154533 4162 4203 40532912 3700 10563 98999295 8745 2244 7700 737 6.902 6.628 6.302 6.002 5724 5.468 52295008 4002 4011 4.432 4265450039823824 15 11 10:3809712 9108 5559 8001 7600 7991 6.011640261425.847 5575 5.324 50924376 46754409 4315415340013059 30 1652 1030 1030694478513 702473796.9746604 5.285 59545668 5.405 5162 4933 4730 4536 4:57 4109 4033387 12000 11221204779763 9.122 0544 00227549712067296.773 50475749 5.4755 222 4990775 4.5784391421940503910 12659 090 0.02810059 9.372 756 201 7700 72506040 6.407 6720 5.10 5.534 5.2735033 481246004499 42434000 1920 004 2005 11158 10330 9.604 950 0.365 7839 2.366 998 6550619850775584 5.316 5.070404635 44424263 4097 3.12 20 13500 1262 1470 10504 92129 0517963 74607025 6623 6.250 5.929 5628 5.353 5301 4070 4657 4400 421940 1951 21 14029 12.324 1756 10300 10.01792923649 80757562 77026687 6.3125972 5665 524 512741191 4675 4476 4292 4121 2900 22 45110163 20421001 102019.442 772 000 2645 2130 6.70 6.259 0.0115.090 5410 5594909 460 4438 4302 4003970 152 12300 1272 10:3710500000206 77 7230 6792 6.399 004 5723551249254703199 2020 24 15 247 1790125500105209207 905 140 270472036005 6.434 607 574634575182 497 470 4507431842901 156:22 094 1273 1654 1675 92 9077842270037390736404 6.0975705 5.467 5198 4721 451 452 410 1905 20 15.983 143180038200010 0.929 9961 BABU 2096 232 6.900 6491685780 5.400 5.2004956728452043284151 2088 16230 160 321111.987 1935 10027957901 7409 0.95 6.14 606 5.790 492 5215 4964 4734454441541990 2 66 100 100 120 1001 10110 9.307160279047411 090168940152 5810 5502 522 970 4710452043054157 1992 229 90491 350 2150 100 03370 650 3.022 7470.63 8.5516366 582055105229975305143745593994 30 172 1537 0.765 12.400 11250102349.427 1694 055 74907003 6.500 6.75029 550 5235 40 4246 4.534 4399 400 1995 do 197372150 1500 1975 107570793951 824 7034 7105 6612 6233 587 550 5258 4997476045403999 2. The company is considering a project involving the purchase of new equipment Change the data area of your the following: Use Exhibit 14B-1 and Exhibit 14B-2 (Use appropriate factor(s) from the tables provided) c B A 1 Chapter 14: Applying Excel 2 3 Data 4 Example E 5 Cost of equipment needed 6 Working capital needed 7 Overhaul of equipment in four years 8 Salvage value of the equipment in five years 9 Annual revenues and costs Sales revenues 10 Cost of goods sold 11 12 Out-of-pocket operating costs Discount rate 13 $ $ $ $ 140,000 55,000 15,000 35,000 $ $ $ 365,000 240,000 85,000 13% a. What is the net present value of the project? (Negative amount should be indicated by a minus sign. Round your present value factor to 3 decimals and round all other intermediate calculations to nearest whole dollar) Not present value es c. The internal rate of return is between what two whole discount rates (eg, between 10% and 11%, between 11% and 12%, between 12% and 13%, between 13% and 14%, etc.)? The intamat roto of rotum is between % and % d. Reset the discount rate to 13%. Suppose the selvage value is uncertain. How large would the salvage value have to be to result in a positive net present value? Minimum talynge value required to generato a positive present Value 1 Year 2 Now 1 2 3 S 3. Purchase of equipment $ (60,000) 4 Investment in working capital $ (100,000) 5 Sales $ 200,000 $ 200,000 $ 200,000 $ 200,000 $200,000 6 Cost of goods sold $(125,000) S (125,000) S (125,000) S (125,000) S (125,000) 7 Out-of-pocket costs for salaries, advertising, etc. $ (35,000) $ (35,000) $ (35,000) $ (35,000) $ (35,000) 8 Overhaul of equipment $ (5,000) 9 Salvage value of the equipment $ 10,000 10 Working capital released $ 100,000 11 Total cash flows (0) $ (160,000) $ 40,000 $40,000 $40,000 $35,000 $ 150,000 12 Discount factor (14%) (b) 1.000 0.877 0.769 0.675 0.592 5 0.519 13 Present value of cash flows (0) (b) $ (160,000) S 35,080 $ 30,760 $ 27,000 $ 20,720 $ 77,850 14 Net present value (SUM B13:13) $ 31,410 15 16 Note: The discount factors come from Exhibit 148-1 in Appendix 148, 12 THE Exhibit 14-8 Exhbet 149 En 14-10 Exhbt 14-11 Exhibit Source: Microsoft Excel Perloo 5 61 B 10 11 135 145 17 20 0.962 0952 0943 09350926 097 090909010893 09850877 0.870 0.862 0.855 0347 0.840 0933 0826082003130806 0.500 2 0925 0907 0990 0373 08570.542 0826 0.812 0.797 0783 0759 0.7560743 0731 0718 07060694 0.683 0672 0661 0650 0640 3 0.0090.354 0340 0.816 0.794 07207510731 0712 0.693 0.6750658 0641 0624 0.609 0.594 0.579 0564 0551 053705240512 0295 02079207630735 078 06830659 0636 061305920572 0.552 0534 0510 0499 0.42 0.467 0451 0.437 0423 0410 5 0822 0734 0747 0713 0.6810650 062105930567 050 05190497 0.478 0.456 0.437 0.419 0.402 0.386 0.370 0355 0.3410328 5 07900746 0.705 0666 0.630 0596 0564 0.535 0507 0190 0.456 0.432 04100390 0370 0352 0.335 039 0303 0289 02750262 7 07000 0.665 0.623 0.583 0547 0.50 0.482 0.452 0425 0400 0376 0354 0331 03140296 0279 0283 0249 0235 0.22 0.210 8 0731 06770.0270582 0540 0.502 0.467 04340404 0378 0351 0327 0.305 0.285 0.250 0.2490233 0218 0.2040191 0179 0168 0.703 085 0.5920544 0.500 0.460 0424 0.391 0351 0.313 0.308 024 0263 0243 0225 0.209 0.194 01800167 0.155 0544 0:134 30 0.676 0.614 0558 0508 0.463 0.422 0.306 0352 0.322 0295 0270 0.247 0.227 0.208 0191 0176 01620.549 0157 0.125 0.116 0107 11 0.650 055 052 0.875 0.429 0.388 0.350 0.31 0.287 0.261 0237 0215 0.1950178 01620548 0135 0123 0.112 0103 0.094 0008 0.625 0557 0.497044 0.397 0.356 0.319 0.286 0257 0231 0.208 0187 0168 015203370124 0112 0102 0.092 00830076 0009 0.601 0530 0409 0.45 0.368 0.326 02900258 0229 0204 0120363 015 01300116 01040090 0.084 0.075 0.068 0.061 0.055 14 0.577 0.505 0.442 0388 0.340 0299 0.263 0.232 0.205 0.581 0160 041 0125 011 0.099 0.008 0.078 0.009 00620055 0049 0044 15 0.555 0.431 040 0362 0.315 0275 0239 02090353016005400123 0880095 0.014 0.074 0.065 0.057 0.051 000500400035 15 0534 0.4580394 03390.292 0252 0.2180188 0.163 0141 0123 09070093 0.001 0.07 0.062 0.054 0047 00420.036 0022 0.028 0.53 0.436 037 031702700231 0198 0170 0146 01250108 0090 0.000 0.009 0.060 0,052 0.045 0.039 0.034 0030 0.025 0.023 049404160350 0.296 0.250 0.2020.150 0953 010 01 0095 0.081 0009 0059 0.051 0044 0.038 0.032 0.028 0.024 0.021 0.01 0.475 0.396 0.331 02770222 0194 05640138 0:11 0.098 0.03 0.070 0.000 0.0510003 0.037 0001 0027 0.023 0020 000 0014 0.456 0377 0.3120.253 0.215 0.17 0.19 01240104 0002 0.0730001005100430070031 0.026 0022 0.0190016 0.01 0.012 009 0.359 0.294 0242 0000164 01350112 0093 0.077 0004 0.053 004 0.037 0.021 0.025 0.022 0.01 0.015 0.06 0.0110009 22 0422034202780226015401500123 0101 0000 0.008 0.056 0006 0.03 0.0320026 0.022 000 0015 000 0011 00090007 22 0406 0.326 0.20202110170 013301120091 0.074 0000 0049 0040 0033 0027 0.022 0.00015 0.012 0.000 0.00 0.00 0.006 24 0390 0.3100247 0197 0158 0.125 0102 0082 0006 0.053 0043 0.035 0028 0.023 0.019 0,015 000 0010 0000 0002 0.000 0005 35 0.75 0295 023301140480116 0.092 0074 0050 0047 0028 0.0300024 0020 0010 0.00 0.00 0.00 0.007 0.005 0.005 0004 20 0.361 028102200172 0135010000140006 005 0012 0.003 0.026 0021 0010010011 0000 0.007 000 000 0004 0.000 034102080207 0501 0125 0000 0.076 0000 000 000 0029 0023 0.01 0.0100 0000 0000 000 0005 0000 0000 0002 20 031330255016 015001 0000 0000 0.054 002 00300020002000100010010 0000 0000 0005 0.001 0.00000000002 20 0221020105 011 0.107 0012 0.003 004 0037 00290022 000 002 0011 0000 0000 00050004 0000 0002 0.002 0.002 30 030302310174 0000 007 0057 00440033 0025 0.020 00150012 0.000 0.007 0.005 0000 0.00 0.00 0.00 0.00 0.001 00012 0.007 006200400032 0022 0.015001100010005 0004 0.003 0002 0.001 00010001 0000 0000 0000 0000 0000 DENS eos 6 10 3 16 19 20 20952093 0935 0925 0907 0.90909010090 0.885 0.677 0.870 08020255 0347010008330920082003030308 0.800 2 1859 333 TO 1783 50 1736 17010901663 1647 1820 100515851566 1547 1528 150914921476 1457 400 2773 22572 2531 2.487 2444 24022361 222 223 2246 2210 202140 2106 2074 2012 2011 1981 1952 4 200 35461163887 3:12 1240 3.1011023037 2074 204 2055 279 270 2600 2039 2.589 2500 2494 245 2.404 2362 4329 1213 2300 329913090 3.791 3696 1605351710333523274 399 327 3058 2991 2926 2064 2003 2.75 2009 52025070 1977 4707 4623 4400 4355231 3.998 389 3784 1685 3509 2090341033283245 35573092 3020 2951 2 60025700 5507530952065033 43002 45644423 4288 400 40393.922 212 370636053508 14% 1327 32423101 8.46.210 am 5747 5505 5335 53464.900479946394487 494 4.207 4073 395438373.726 3619235183421 3229 9 7100 6.30.315 6247 5995 57505537 5328 5.132 494647724607451 43034634001 905 276 26733565343 10 7722 2360 7024 0710 6. 6.145 5.889 5650 5.426 5216 5.019 433 4659 4494 43394192 4.0543923 379936323571 11 3.700 1300 7007 7499 709 6.805 695 6.2025939 5.687 453 5234502948364656 4.496 4327 4.77 4035 3902 3.776 3656 1 915 790 7530 2001 0.314 6.492 61943018 5.660 5421 5197 498647934611 409 4278 4127 399530513725 9.906 9394 3853 350 2900 2407 71036750 424 6.122 5.342 5563 525.710 4910 4715 4530436242034053 3.902 3780 10563 9099 9295 3745 24 7790 7367 6.902 6.620 63026002 57245468 522950084302461 4432420541083962 3024 15 10330972 9.500 1599 061 7006 2191 68116462 6142 5.3475575 5324 5.092 487646794489315415340013059 116529033110.06 9447 8851 8.30 2824 739 6974 6604 6205 5951 566 5005 5162493847304536 4357 418940313887 12.10 1127410779763 9122 0544 10227549710 67296373 60475749 5.475 5.272 4990 4775 4570439142190593.910 12.650 11600 10821100599372 750 1201 7702 7250 6.50 6.457 61205.8105534 52735033 4.124608 4.419 424340003928 19 13.034 12085 1152 10336 9004 3.9500365780973666308 6550619850775564 5.16 5070 443 4635 4442 4260 40973942 20 125 12621470394 0818 120 5179637400 7025 6623 6.259 5.929 5.6205353 5101417046874504279410 3954 21 H1099 12.021 1764 10.000 10.0179292 3649 1075 75627802 6687 63125972 56655.384 51274191 46754.476 4292401 390 14451363 2017 11001 10201 9447 772 176 76157170 670695005098 5410 594909 4000 4300 430 3970 1457174912303 9272 0.371 0.530 20002007710723067926399 004 572 502 5367 4925 47034499 4.311 1973970 15242 17902150469905299707985 1348774720383356.634 601 57865451512497 470 4507431 45032901 25 16.622 4094 12750 11654906750823 9.0778422784373306 6:44 0975766 546751954941721 25164323 4567 1905 20 15913 17 30031220103109.929 0101487096 73729091 378354805 200 495647284520 421 4151 22 18:30 211971091510027 0233548200740906.6505791 54925254964 473 454 422 454 990 16663 206 207 705110110 9307160229047441600154652505502 52739704730452043354157 3092 20 45 150 2015 10100 03701650022 74709026551666 502050105229 475 470 451 44501004 30 1722 15.12.10 12.109725810274627105570907000505612 55507521597949464530 45001005 40 1703 17500 1025 10752 073951 1244 70347050842 0233501 5500 5258499704540401099 2. The company is considering a project involving the purchase of new equipment Change the data area of your worksheet to match the following: Use Exhibit 148-1 and Exhibit 14B-2. (Use appropriate factor(s) from the tables provided.) B Chapter 14: Applying Excel 1 2 3 4 5 6 $ 400,000 $ 45,000 $ 20,000 $ 35,000 2 Data Example E Cost of equipment needed Working capital needed Overhaul of equipment in four years Salvage value of the equipment in five years Annual revenues and costs. Sales revenues Cost of goods sold Out-of-pocket operating costs Discount rate 8 9 10 11 $ $ 405,000 235,000 60.000 13% $ 12 13 a. What is the net present value of the project? (Negative amount should be indicated by a minus sign. Round your present value factor to 3 decimals and round all other intermediate calculations to nearest whole dollar.) Not present value c. The internal rate of return is between what two whole discount rates (eg, between 10% and 11%, between 11% and 12%, between 12% and 13%, between 13% and 14%, etc.)? The internal rate of return is between % ond % d. Reset the discount rate to 13%. Suppose the salvage value is uncertain. How large would the salvage value have to be to result in a positive net present value? Minimum salvage value required to generate a positive present value