2,205,000 7 225,000 s 2,750,000 1,600,000 1.150,000 $ 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 8 Variable expenses 9 Contribution margin 10 Fixed expenses: 11 Salaries, rent and other fixed out-of pocket costs s 12 Depreciation 13 Total fixed expenses 14 Net operating income 15 18% 16 Company discount rate 17 18 1. Compute the annual net cash inflow from the project. 19 520,000 350.000 870.000 290,000 $ $ 630,000 630,000 cos 225,000.00 225,000.00 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 S (2,205,000.00) 25 Annual cost savings $ 630,000.00 26 Salvage value of the new machine $ 27 Total cash flows $ 2.205,000.00) S 630,000.00 $ 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 2,205,000.00 $ 2,205,000.00 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. 39 40 5. Compute the project's simple rate of return. ye 41 42 43 14 Sheet1 -- Prev 1 of 4 !!! Next >