Question
27. Calculating NPV and IRR Using Excel. Sherwin Moore Paint Company would like to further automate its production process by purchasing production equipment for $660,000.
27. Calculating NPV and IRR Using Excel. Sherwin Moore Paint Company would like to further automate its production process by purchasing production equipment for $660,000. The equipment is expected to have a useful life of 8 years, and will be sold at the end of 8 years for $40,000. The equipment requires significant maintenance work at an annual cost of $75,000. Labor and material cost savings, shown in the table, are also expected to be significant.
| Year 1 | $160,000 |
| Year 2 | $190,000 |
| Year 3 | $200,000 |
| Year 4 | $240,000 |
| Year 5 | $280,000 |
| Year 6 | $220,000 |
| Year 7 | $180,000 |
| Year 8 | $155,000 |
The company's required rate of return is 11 percent.
Required:
- Use Excel to calculate the net present value and internal rate of return in a format similar to the Computer Application spreadsheet shown in the chapter.
- Should the company purchase the production equipment? Explain.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access with AI-Powered Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started
Auditing Cases An Active Learning Approach
Authors: Mark S. Beasley, Frank A. Buckless, Steven M. Glover, Douglas F. Prawitt
2nd Edition
0130674842, 978-0130674845
