1 A 2 Laurman, Inc. is considering the following project: 3 4 Required investment in equipment 5 Project life 6 Salvage value 7 8 The project would provide net operating income each year as follows: 9 Sales 10 Variable expenses 11 Contribution margin 12 Fixed expenses: 13 Salaries, rent and other fixed out-of pocket costs 14 Depreciation 15 Total fixed expenses 16 Net operating income 17 18 Company discount rate 19 20 Required: 21 22 23 B C D E F $2,205,000 7 225,000 $2,750,000 1,600,000 $1,150,000 $520,000 350,000 870,000 $280,000 18% (Use cells A4 to C18 from the given information to complete this question. Negative amounts or amounts to be deducted should be input and displayed as negative values.) 24 1. Compute the annual net cash inflow from the project. $630,000 25 A 26 2. Complete the table to compute the net present value of the investment. 27 28 29 30 Initial investment 31 Annual cost savings 32 Salvage value of the new machine 33 Total cash flows 34 Discount factor 35 Present value of the cash flows 36 Net present value 37 38 Use Excel's PV function to compute the present value of the future cash flows 39 Deduct the cost of the investment 40 Net present value 41 42 3. Use Excel's RATE function to compute the project's internal rate of return 43 44 4. Compute the project's payback period. 45 46 5. Compute the project's simple rate of return. 47 48 B C D E Year(s) Now ($2,205,000.00) 1 through 7 7 $630,000.00 $225,000.00 ($2,205,000.00) 1.00000 $630,000.00 $225,000.00 years