B B 1 Chapter 14: Applying Excel N 4 $ $ 6 120,000 35,000 5,000 20,000 7 3 Data Example E 5 Cost of equipment needed Working capital needed Overhaul of equipment in four years Salvage value of the equipment in five years 9 Annual revenues and costs: Sales revenues Cost of goods sold 12 Out-of-pocket operating costs 13 Discount rate $ 8 $ 10 $ 11 370,000 265,000 65,000 18 % $ 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 18%. 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 Years 3 1 N 3 4 01 1 Chapter 14: Applying Excel 2 3 Data 4 Example E 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 14-8 17 18 Now 19 Purchase of equipment ? 20 Investment in working capital ? 21 Sales 22 Cost of goods sold 23 Out-of-pocket operating costs 24 Overhaul of equipment 25 Salvage value of the equipment 26 Working capital released 27 Total cash flows (a) ? 28 Discount factor (14%) (b) ? 29 Present value of cash flows (a) x (b) ? 30 Net present value ? 31 32 *Use the formulas from Appendix 13B: 33 Present value of $1 = 1/(1+r)^n 34 Present value of an annuity of $1 = (1/1)*(1-(1/(1+r)^n)) 35 where n is the number of years and r is the discount rate 36 37 ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? 2 2 38 39 40 41 42