1 Laurman, Inc. is considering the following project: 2 Required investment in equipment 3 Project life 4 Salvage value 5 6 The project would provide net operating income each year as follows: 7 Sales 8 a Variable expenses Contribution margin $ 2,205,000 7 225,000 $ 2,750,000 1,600,000 1,150,000 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 870,000 280,000 15 16 Company discount rate 18% 17 18 1. Compute the annual net cash inflow from the project. 19 59982 20 2. Complete the table to compute the net present value of the investment. 21 22 23 Now Year(s) 1-7 READY Attempt(s) Sheet1 $0 1 of 13- Next % 4 5 6 8 100% ulation - Capital Budgeting 13 24 Initial investment A 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 Saved B C D E Now 1-7 7 1.000 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 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. 39 40 5. Compute the project's simple rate of return. Sheet1 ACCOUNTING HO....jpg Prev 1 of 1 Next years + Simulation - Capital Budgeting ternal_browser=0&launchUrl=https%253A%252F%252Flms.mi Saved 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 www Calibri Paste BIU- Clipboard G Font A1 7 FORMULAS DATA REVIEW VIEW Sign In N A A % M Alignment Number Conditional Format as Cell Formatting Table Styles Styles Cells Editing Laurman, Inc. is considering the following project: A B 1 Laurman, Inc. is considering the following project: 2 Required investment in equipment 3 Project life 4 Salvage value 5 $ 6 The project would provide net operating income each year as follows: 7 Sales Contribution margin Variable expenses 10 Fixed expenses. Salaries, rent and other fixed out-of pocket costs W Depreciation Total fixed expenses LU R 5 C 2,205,000 7 225,000 D E S 2,750,000 S 1,600,000 1,150,000 520,000 350,000 870,000 Prev 1 of 1 222 Next 144 6 & 7 8 9 C