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.)

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.)?

d. Reset the discount rate to 13%. Suppose the salvage value is uncertain. How large would the salvage value have to be to result in a positive net present value?

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 14B-1 and Exhibit 14B-2. (Use appropriate factor(s) from the tables provided.) A B 1 Chapter 14: Applying Excel 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: 110,000 50,000 10,000 7 $ 8 $ 20,000 9 10 Sales revenues $ 395,000 11 $ Cost of goods sold Out-of-pocket operating costs 280,000 85,000 12 13 Discount rate 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.) Net present value 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.)? The internal rate of return is between % and % d. Reset the discount rate to 13%. Suppose the salvage value is uncertain. How large would the salvage value have to be to result in a positive net present value? Minimum salvage value required to generate a positive present value EXHIBIT 14-8 The Net Present Value Method-An Extended Example A B D E F G Year 2 Now 1 2 3 4 5 3 Purchase of equipment $ (60,000) 4 Investment in working capital $ (100,000) 5 Sales $ 200,000 $ 200,000 $ 200,000 $ 200,000 $ 200,000 6 Cost of goods sold $ (125,000) $ (125,000) $ (125,000) $ (125,000) $ (125,000) 7 Out-of-pocket costs for salaries, advertising, etc. $ (35,000) $ (35,000) $ (35,000) $ (35,000) $ (35,000) 8 Overhaul of equipment $ (5,000) 9 Salvage value of the equipment $ 10,000 10 Working capital released $ 100,000 11 Total cash flows (a) $ (160,000) $ 40,000 $40,000 $ 40,000 $ 35,000 $150,000 12 Discount factor (14%) (b) 1.000 0.877 0.769 0.675 0.592 $ 0.519 13 Present value of cash flows (a) (b) $ (160,000) $ 35,080 $ 30,760 $ 27,000 $ 20,720 S 77,850 14 Net present value (SUM B13:13) $ 31,410 15 16 Note: The discount factors come from Exhibit 14B-1 in Appendix 14B. 17 NON Exhibit 14-8 Exhibit 14-9 Exhibit 14-10 Exhibit 14-11 Exhibit M Source: Microsoft Excel