ALL ANSWERS MUST BE ENTERED AS A FORMULA!

7 1 1. Determine the payback period for an investment. 2. Evaluate the acceptability of an investment project using the net present value method. 3. Evaluate the acceptability of an investment project using the internal rate of return method. 4. Compute the simple rate of return for an investment Comparison of Capital Budgeting Methods - Excel FILE INSERT PAGE LAYOUT FORMULAS RIVIEW VIEW 111 AN M ta BIU- 4. Alignment Number Condition Format Call Cels Formatting Table Styles Clipboard A1 Lurman, Inc. is considering the following project HOME DATA Sign Paste Font X D - 2,20500 7 225.000 B Laurman, Inc. is considering the following project: 2 Required investment in equipment 5 3 Project life 4 Salvage value 5 6 The project would provide net operating income each year as follows: 7 Sales Variable expenses 9 Contribution margin 10 Fixed expenses Salaries, rent and other fixed out of pocket costs S 12 Depreciation 13 Totalfixed expenses $ 2.750.000 1.000 1.150.000 $ 520.00 350.000 70300 B D E 870,000 280,000 3 Total fixed expenses 4 Net operating income 15 16 Company discount rate 18% 17 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 25 Annual cost savings 26 Salvage value of the new machine 27 Total cash flows 28 Discount factor 1.000 29 Present value of the cash flows 30 Net present value 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 7 31 15 . E D 7 R 23 Now 1-7 24 Initial investment 25 Annual cost savings 26 Salvage value of the new machine 27 Total cash flows 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 ensh 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 37 38 4. Compute the project's payback period. 39 40 5. Compute the project's simple rate of return. years 41 42 44