Edit View Histor A chegg.com Mana Promote Academic Integrity | Improve Stu... ACC 222 - Google Drive 99 Study Textbook Solutions Expert Q&A Practice Mom Bookmark Show all steps: ON Chapter 8, Problem 1AE The Excel worksheet form that follows is to be used to recreate Example E and Exhibit 8-7. Download the workbook containing this form from Connect. On the website you will also receive instructions about how to use this worksheet form. D Omple App Data 4 Example Cost ofert needed $30 000 Worlog capital needed $100,000 7 Overhaul of equipment in four years S5 000 * Savage value of the comes in the year $10.000 9 Annual revenues and costs 30 Sales revenues 5200 000 13 Cost of goods sold $125.000 12 Out-of-pochet operating costs 535 000 Discount 14 Enter a formula o cach to the below 14 Exhibit - vel 3 1 4 5 9 ? 2 2 ? 2 NO 11 Purchase of equipment 2 20 Investment in working capital 2 22 Cost of goods sold 22 Out of pocket operating costs 24 Overheu of equipment Salvage value of the smart 24 Working capitaleeased 22 Total cash flows a 21 Discount factor (145) 2 23 Preset value of cash flow all 2 36 Net present value 2 12 Use the torustom Appendx 138 11 Preset value of 5111 14 Present value of at 051 (141) 15 where is the number of years and is the CISCOUT 2 2 ? ? 2 2 You should proceed to the requirements below only after completing your worksheet. Note that you may get a slightly different net present value from that shown in the text due to the precision of the calculations. Required: Study Textbook Solutions Expert RITARREN MEERRIES AR KI YELER Bookmark Show all steps: ON Chapter 8, Problem 1AE Required: 1. Check your worksheet by changing the discount rate to 10%. The net present value should now be between $56,495 and $56,518-depending on the precision of the calculations. If you do not get an answer in this range, find the errors in your worksheet and correct them. Explain why the net present value has increased as a result of reducing the discount rate from 14% to 10%. 2. The company is considering another project involving the purchase of new equipment. Change the data area of your worksheet to match the following: a. What is the net present value of the project? $120,000 $80,000 $40,000 . Data Example E Cost of equipment needed Working capital needed Overhaul of equipment in four years Salvage value of the equipment in five years Annual revenues and costs: Sales revenues Cost of goods sold Out-of-pocket operating costs Discount rate $20,000 $255,000 $160,000 $50,000 14% b. Experiment with changing the discount rate in one percent increments (e.g., 13%, 12%, 15%, etc.). At what interest rate does the net present value turn from negative to positive? c. The internal rate of return is between what two whole discount rates (e.g., between 10% and chegg.com Promote Academic Integrity Improve Stu... ACC 222 - Google Drive NEWI g Study Textbook Solutions Expert Q&A Practice Chapter 8, Problem 1AE Bookmark ON Show all steps: 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.)? 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? (Reference Exhibit 87) on on EXHIBIT 8-7 The Net Present Value Method-An Extended Example D E 2 Year 2 Now 1 2 3 5 2 Purchase of equipment 160.000 4 Investment in working capital S (100 000 5 Sales $ 200,000 $ 200,000 $ 200,000 $ 200.000 5 200.000 6 Cost of goods sold S 125.000) $ 125,000) S (125,000) S (125,000) S (125.000) 7 Out-of-pocket costs for salaries, advertising etc S (35000) $ (35000) (35000) (35000) $ (35000) & Overhaul of equipment $ (5.000) 9 Salvage value of the equpment S 10.000 10 Working capital released $ 100.000 1: Total cash flows la) $ (160.000) S 40.000 $ 40,000 $ 40,000 $ 35,000 $ 150,000 12 Discount factor (145) (b) 1.000 0877 0789 0.675 0592 S 0.519 13 Present value of cash tons (a) $ (160.000) 5 35080 S 30.760 S 27 000 $ 20.720 S 77850 14 Net present value (SUMB13 G13) S 31 410 15 16 Note: The discount factors come from Etibt 88-1 in Appendix B Fhi