5 Cost of equipment needed $60.000 6 Working capital needed $100,000 7 Overhaul of equipment in four years $5,000 8 Salvage value of the equipment in five years $10,000 9 Annual revenues and costs 10 Sales revenues $200,000 11 Cost of goods sold $125,000 12 Out-of-pocket operating costs $35,000 13 Discount rate 14% 14 15 Enter a formula into each of the cells marked with a ? below 16 Exhibit 12-8 17 Years 18 Now 1 2 3 4 5 19 Purchase of equipment $ 60,000) 20 Investment in working capital $ (100,000) 21 Sales $ 200,000 $ 200,000 $ 200,000 $ 200,000 $ 200,000 22 Cost of goods sold $ (125,000) $ (125,000) $ (125,000) $ (125,000) $ (125,000) 23 Out-of-pocket operating costs $ (35,000) $ (35,000) $ (35,000) $ (35,000) $ (35,000) 24 Overhaul of equipment $ (5,000) 25 Salvage value of the equipment $ 10,000 26 Working capital released $ 100,000 27 Total cash flows (a) $ (160,000) $ 40,000 $ 40,000 $ 40,000 $ 35,000 $ 150,000 28 Discount factor (14%) (b) 1.000 0.877 0.770 0.675 0.592 0.519 29 Present value of cash flows (a) (b) $ 160,000) $ 35,080 $ 30,800 $ 27,000 $ 20,720 $ 77,850 30 Net present value $ 31,450 31 32 *Use the formulas from Appendix 13B: Chapter 12: Applying Excel: Exercise (Part 2 of 2) (Algo) 2 The company is considering a project involving the purchase of new equipment. Change the data area of your worksheet to match the following: Use Exhibit 128.1 and Exhibit 12B-2 (Use appropriate factor(s) from the tables provided.) B C A Chapter 12: Applying Excel 1 2 3 Data 4 5 $ $ 6 Example E Cost of equipment needed Working capital needed Overhaul of equipment in four years Salvage value of the equipment in five years Annual revenues and costs 260,000 30.000 15,000 35.000 7 $ $ 8 9 10 11 Sales revenues Cost of goods sold Out-of-pocket operating costs Discount rate $ $ $ 380,000 255.000 50.000 18% 12 13 a. What is the net present value of the project? (Negative amount should be indicated by a minus sign. Round your present value factor to 3 decimals and round all other intermediate calculations to nearest whole dollar.) Answer is complete but not entirely correct. Net present value 5 5.196 c. The Internal rate of return is between what two whole discount rates (e.g., between 10% and 11%, between 11% and 12% between 12% and 13%, between 13% and 14%, etc.)? Answer is complete but not entirely correct. The internal rate of return is between 15 %% and 16 % d. Reset the discount rate to 16%. Suppose the salvage value is uncertain. How large would the salvage value have to be to result in a positive net present value? Answer is complete but not entirely correct. Minimum salvage value required to generate a positive present value S 45.914