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. Comparison of Capital Budgeting Methods - Excel - FILE HOME INSERT PAGE LAYOUT FORMULAS DATA REVIEW VIEW Sign In Calibri 11 % Paste BIU. Alignment Number Cells Conditional Format as Cell Formatting Table Styles - Styles Clipboard Font A D12 D E $ 2,750,000 1,600,000 1,150,000 $ $ C 1 Laurman, Inc. is considering the following project: 2 Required investment in equipment $ 2,205,000 3 Project life 7 4 Salvage value 225,000 5 6 The project would provide net operating income each year as follows: 7 Sales 8 Variable expenses 9 Contribution margin 10 Fixed expenses: 11 Salaries, rent and other fixed out of pocket costs 520,000 12 Depreciation 350,000 13 Total fixed expenses 14 Net operating income 15 16 Company discount rate 18% 17 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. 21 22 Year(s) 23 Now 1-7 870,000 280,000 $ 7 Sheet1 READY + 100% Comparison of Capital Budgeting Methods - Excel FILE HOME INSERT PAGE LAYOUT FORMULAS DATA REVIEW VIEW Sign In Calibri 11 % Paste BIU Alignment Number Cells Conditional Format as Cell Formatting Table Styles - Styles Clipboard Font D12 fo B D E 7 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 21 22 Year(s) 23 Now 1-7 24 Initial investment 25 Annual cost savings 26 Salvage value of the new machine 27 Total cash flows 28 Discount factor 1.000 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 35 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. years 39 40 5. Compute the project's simple rate of return. Sheet1 READY + 100%