d. Reset the discount rate to 14%. Suppose the salvage value is uncertain. How large would the salvage value have to be to result in a positive net present value?
Required information The Chapter 14 Form worksheet is to be used to create your own worksheet version of Example E and Exhibit 14-8 in the text. 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.) B 1 Chapter 14: Applying Excel 2 $ $ $ $ 300,000 60,000 30,000 35,000 3 Data a Example E 4 5 Cost of equipment needed Working capital needed 6 Overhaul of equipment in four years 7 Salvage value of the equipment in five years 8 Annual revenues and costs: 9 Sales revenues 10 Cost of goods sold 11 Out-of-pocket operating costs 12 Discount rate 13 $ $ 390,000 210,000 90,000 14% $ 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.) Answer is complete and correct. Net present value $ (19,432) 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.)? Answer is complete and correct. . The internal rate of return is between 11% and 12% d. Reset the discount rate to 14%. Suppose the salvage value is uncertain. How large would the salvage value have to be to result in a positive net present value? ? Answer is complete but not entirely correct. Minimum salvage value required to generate a positive present value $ 35,000 $ B U E F G H 1 Chapter 14: Applying Excel 2 3 Data 4. Example E 5 Cost of equipment needed $300,000 6 Working capital needed $60,000 7 Overhaul of equipment in four years $30,000 8 Salvage value of the equipment in five years $35,000 9 Annual revenues and costs: 10 Sales revenues $390,000 11 Cost of goods sold $210,000 12 Out-of-pocket operating costs $90,000 13 Discount rate 14% 14 15 Enter a formula into each of the cells marked with a ? below 16 Exhibit 14-8 17 Years Now 1 2 3 4 5 19 Purchase of equipment $ (300,000) 20 Investment in working capital $ (60,000) 21 Sales $ 390,000 $ 390,000 $ 390,000 $ 390,000 $ 390,000 22 Cost of goods sold $ (210,000) $ (210,000) $ (210,000) $ (210,000) $ (210,000) 23 Out-of-pocket operating costs $ (90,000) $ (90,000) $ (90,000) $ (90,000) $ (90,000) 24 Overhaul of equipment $ (30,000) 25 Salvage value of the equipment $ 35,000 26 Working capital released $ 60,000 27 Total cash flows (a) $ (360,000) $ 90,000 $ 90,000 $ 90,000 $ 60,000 $ 185,000 28 Discount factor (14%) (b) 1.0000 0.8772 0.7695 0.6750 0.5921 0.5194 29 Present value of cash flows (a) (b) $ (360,000) $ 78,948 $ 69,255 $ 60,750 $ 35,526 $ 96,089 30 Net present value $ (19,432) 31 32 *Use the formulas from Appendix 13B: 33 Present of $1 = 1/(1+r)^n 34 Present value of an annuity of $1 = (1/r)*(1-(1/(1+r)^n)) 35 where n is the number of years and r is the discount rate 36 37 38
