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Comparison of Capital Budgeting Methods 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 FILE HOME INSERT PAGE LAYOUT FORMULAS DATA REVIEW VIEW LEH Sign In r u . B- 5- Number Formation 1 Format as Styles. Alignment Cells Editing . Font Laurman, Inc. is considering the following project: red investment in equipment 2,205,000 3 Project life 225,000 2,750,000 1,600,000 1,150,000 8 Variable expenses 10 Fixed expenses: Styles A6 The project would provide net operating income each year as follows: X 'V J : Laurman, Inc. is considering the following project: 2 Required investment in equipment 3 Project life 2,205,000 225,000 The project would provide net operating income each year as follows: S 2,750,000 1,600,000 1,150,000 10 Fixed expenses 11 Salaries, rent and other fixed out-of pocket costs 12 13 Total fixed expenses 14 Net operating income 15 16 Company discount rate 520,000 350,000 870,000 280,000 18% 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 Year(s) 1-7 Now +100% 19 20 2. Complete the table to compute the net present value of the investment Year(s) Now 24 Initial investment 25 Annual cost savings 26 Salvage value of the new machine 27 Total cash flows 28 Discount factor 29 Present value of the cash flows 30 Net present value 1.000 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 36 3. Use Excel's RATE function to compute the project's internal rate of return 38 4. Compute the project's payback period. 40 5. Compute the project's simple rate of return. Sheet1. 100%