\begin{tabular}{|c|c|c|} \hline Lauman, Inc, is considering the fol & & \\ \hline Required investment in equipment & $ & 2,205,000 \\ \hline Project life & & 7 \\ \hline Salvage value & & 225,000 \\ \hline \end{tabular} Fixed expenses: \begin{tabular}{l|l|} \hline Salaries, rent and other fixed out-of pocket costs & $5 \\ \hline Depreciation & 320,000 \\ & 350,000 \\ \hline \end{tabular} \begin{tabular}{|l|r|r|} \hline Total fixed expenses & & 870,000 \\ \hline Net operating income & $280,000 \\ \hline \end{tabular} Company discount rate 18% 1. Compute the annual net cash inflow from the project. 2. Complete the table to compute the net present value of the investment. Now \begin{tabular}{|c|c|} \hline Year(s) & \\ \hline 17 & 7 \end{tabular} 1. Compute the annual net cash inflow from the project. 2. Complete the table to compute the net present value of the investment. \begin{tabular}{l|c|c|} & & Year(s) \\ \hline Initial investment & Now & 17 \\ \hline Annual cost savings \\ Salvage value of the new machine \\ Total cash flows \\ Discount factor \\ Present value of the cash flows \end{tabular} Net present value Use Excel's PV function to compute the present value of the future cash flows Deduct the cost of the investment Net present value 3. Use Excel's RATE function to compute the project's internal rate of return 4. Compute the project's payback period. \begin{tabular}{l} Initial investment \\ Annual cost savings \\ Salvage value of the new machine \\ Total cash flows \\ Discount factor \\ Present value of the cash flows \\ Net present value \\ Use Excel's PV function to compute the present value of the future cash flows \\ Deduct the cost of the investment \\ Net present value \\ 3. Use Excel's RATE function to compute the project's internal rate of return \\ \hline 4. Compute the project's payback period. \\ \hline 5. Compute the project's simple rate of return. \end{tabular} - Cell Reference; Allows you to refer to data from another cell in the worksheet. From the Excel Simulation below, if in a blank cell, " C4 " was entered, the formula would output the result from cell C4, or 225,000,000 in this example. - Basic Math functions: Allows you to use the basic math symbols to perform mathematical functions. You can use the following keys: + (plus sign to add), - (minus sign to subtract), " (asterisk sign to multiply), and / (forward slash to divide). From the Excel Simulation below, if in a blank cell * =013+D14 was entered, the formula would add the values from those cells and output the resutt, or 1,150,000 in this example. If using the other math symbols the result would output an appropriate answer for its function. - SuM function: Allows you to refer to multiple cells and adds all the values. You can add individual cell references or ranges to utilize this function. From the Excel Simulation below, if in a blank cell "=SUM(07,08,D9)" was entered, the formula would output the result of adding those three separate cells, or 5,500,000 in this example. Similarly, if in a blank cell "=SUM(D7:D9)" was entered, the formula would output the same result of adding those cells, except they are expressed as a range in the formula, and the result would be 5,500,000 in this example. - RATE function; Allows you to return the interest rate per period. The syntax of the RATE function is "=RATE(nper,pmt,pv, (rv)/(type)] (guess) ) and results in the percentage interest rate value for the related inputs. The nper argument is the total number of payment periods. The pmt argument is the payment made each period that does not change over the life of the investment and this series of future included if the ( /N ) argument is not included. The pv argument is the present value, or the total amount that series of future payments is worth now. The [ fV] largument is the future value, or the cash basis to ottain after the last payment is made and this argument must be included if the pmt argument is omitted. The (type) argument is a logical value of 0 or 1 , which indicates when the payments are due where 1 is the payment at the beginning of the period and 0 , is the payment at the end of the period. Both the (K) and (type) values are optional arguments to have the formula work, which is why they are surrounded by brackets in the syntax, however, these values would not be entered with brackets in the actual function. The [guess) argument is also optional and is your guess for what the rate will be, however, if omitted the system assumes a guess of 10 percent. For the from the function. Also, the pVargument should be entered as negative value, PV Function: Allows you to perform the mathematical present wot present value. The rate argument is the interest rate per period a series of future payments is worth now also known as the pmt argument is the payment made each period that does not che nper argument is the total number of payment periods. The included if the (F) argument is not included. The [N ) argument is the over the life of the investment and this argument must be made and this aroument must be included if the omt aroument is omitted value, or the cash basis to attain after the last payment is \begin{tabular}{|c|c|c|} \hline Lauman, Inc, is considering the fol & & \\ \hline Required investment in equipment & $ & 2,205,000 \\ \hline Project life & & 7 \\ \hline Salvage value & & 225,000 \\ \hline \end{tabular} Fixed expenses: \begin{tabular}{l|l|} \hline Salaries, rent and other fixed out-of pocket costs & $5 \\ \hline Depreciation & 320,000 \\ & 350,000 \\ \hline \end{tabular} \begin{tabular}{|l|r|r|} \hline Total fixed expenses & & 870,000 \\ \hline Net operating income & $280,000 \\ \hline \end{tabular} Company discount rate 18% 1. Compute the annual net cash inflow from the project. 2. Complete the table to compute the net present value of the investment. Now \begin{tabular}{|c|c|} \hline Year(s) & \\ \hline 17 & 7 \end{tabular} 1. Compute the annual net cash inflow from the project. 2. Complete the table to compute the net present value of the investment. \begin{tabular}{l|c|c|} & & Year(s) \\ \hline Initial investment & Now & 17 \\ \hline Annual cost savings \\ Salvage value of the new machine \\ Total cash flows \\ Discount factor \\ Present value of the cash flows \end{tabular} Net present value Use Excel's PV function to compute the present value of the future cash flows Deduct the cost of the investment Net present value 3. Use Excel's RATE function to compute the project's internal rate of return 4. Compute the project's payback period. \begin{tabular}{l} Initial investment \\ Annual cost savings \\ Salvage value of the new machine \\ Total cash flows \\ Discount factor \\ Present value of the cash flows \\ Net present value \\ Use Excel's PV function to compute the present value of the future cash flows \\ Deduct the cost of the investment \\ Net present value \\ 3. Use Excel's RATE function to compute the project's internal rate of return \\ \hline 4. Compute the project's payback period. \\ \hline 5. Compute the project's simple rate of return. \end{tabular} - Cell Reference; Allows you to refer to data from another cell in the worksheet. From the Excel Simulation below, if in a blank cell, " C4 " was entered, the formula would output the result from cell C4, or 225,000,000 in this example. - Basic Math functions: Allows you to use the basic math symbols to perform mathematical functions. You can use the following keys: + (plus sign to add), - (minus sign to subtract), " (asterisk sign to multiply), and / (forward slash to divide). From the Excel Simulation below, if in a blank cell * =013+D14 was entered, the formula would add the values from those cells and output the resutt, or 1,150,000 in this example. If using the other math symbols the result would output an appropriate answer for its function. - SuM function: Allows you to refer to multiple cells and adds all the values. You can add individual cell references or ranges to utilize this function. From the Excel Simulation below, if in a blank cell "=SUM(07,08,D9)" was entered, the formula would output the result of adding those three separate cells, or 5,500,000 in this example. Similarly, if in a blank cell "=SUM(D7:D9)" was entered, the formula would output the same result of adding those cells, except they are expressed as a range in the formula, and the result would be 5,500,000 in this example. - RATE function; Allows you to return the interest rate per period. The syntax of the RATE function is "=RATE(nper,pmt,pv, (rv)/(type)] (guess) ) and results in the percentage interest rate value for the related inputs. The nper argument is the total number of payment periods. The pmt argument is the payment made each period that does not change over the life of the investment and this series of future included if the ( /N ) argument is not included. The pv argument is the present value, or the total amount that series of future payments is worth now. The [ fV] largument is the future value, or the cash basis to ottain after the last payment is made and this argument must be included if the pmt argument is omitted. The (type) argument is a logical value of 0 or 1 , which indicates when the payments are due where 1 is the payment at the beginning of the period and 0 , is the payment at the end of the period. Both the (K) and (type) values are optional arguments to have the formula work, which is why they are surrounded by brackets in the syntax, however, these values would not be entered with brackets in the actual function. The [guess) argument is also optional and is your guess for what the rate will be, however, if omitted the system assumes a guess of 10 percent. For the from the function. Also, the pVargument should be entered as negative value, PV Function: Allows you to perform the mathematical present wot present value. The rate argument is the interest rate per period a series of future payments is worth now also known as the pmt argument is the payment made each period that does not che nper argument is the total number of payment periods. The included if the (F) argument is not included. The [N ) argument is the over the life of the investment and this argument must be made and this aroument must be included if the omt aroument is omitted value, or the cash basis to attain after the last payment is