2,205,000 7 225,000 5 $ 7 2,750,000 1,600,000 1,150,000 8 $ 1 Laurman, Inc. is considering the following project: 2 Required investment in equipment $ 3 Project life 4 Salvage value 6 The project would provide net operating income each year as follows: Sales Variable expenses Contribution margin 10 Fixed expenses: Salaries, rent and other fixed out of pocket costs $ 12 Depreciation 13 Total fixed expenses 14 Net operating income 15 16 Company discount rate 17 9 11 $ 520,000 350,000 870,000 S 280.000 18% AAAA 10 Company discount rate 18% 1. Compute the annual net cash inflow from the project. $ 630,000 2. Complete the table to compute the net present value of the investment. IN ulus 2 Year(s) 3 Now 1-7 Initial investment $ (2,205,000.00) 5 Annual cost savings $ 630,000.00 Salvage value of the new machine $ 7 Total cash flows $ (2,205,000.00 $ 630,000.00 $ 8 Discount factor 1.000 3.182 9 Present value of the cash flows $ (2,205,000.00) $ 2,401, 262.38 $ o Net present value $ 266.895.52 1 2 Use Excel's PV function to compute the present value of the future cash flows 53 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 225,000.00 225,000.00 +314 70,633.13