M N 22 23 A B C D 1 3 19 To Do 20 Create a spreadsheet to answer the following questions: 21 a. Calculate the project's net present value (NPV). Is the project acceptable under the NPV technique? Explain. b. Explain. c. In this case, did the two methods produce the same results? Generally, is there a preference between the NPV and IRR techniques? Explain. d. Calculate the payback period for the project. If the firm usually accepts projects that have payback periods between 1 and 7 years, is this project acceptable? 25 26 Solution 27 28 Estimated life (years) 10 329 Cost-of-capital (1) 13% 30 Initial investment $ 15,000,000 Chapter 10 Calculation Mode: Automatic Workbook Statistics 24 Help impro 092 In cell E78, by using cell references to cells C73, 073 and E40, calculate the payback period of the project. D A B 31 32 Year 33 0 34 1 35 2 36 3 37 4 5 Cash Flow $-15,000,000 600,000 1,000,000 1,000,000 2,000,000 3,000,000 3,500,000 4,000,000 6,000,000 8,000,000 12,000,000 38 39 6 40 7 41 8 9 42 43 10 44 192 f in cell E78, by using cell references to cells c73, D73 and E40, calculate the payback period of the project, E F G H 1 ] A B 44 45 a. Calculate the project's net present value (NPV). Is the project acceptable under the NPV technique? Explain. 46 47 NVP 48 49 the project since the NPV is than zero. 50 51 b. Explain. 52 53 IRR 54 55 the project since the IRR is the cost of capital (13%). 56 57 c. In this case, did the two methods produce the same results? Generally, is there a preference between the NPV and IRR techniques2 Explain. Chapter 10 + Calculation Mode: Automatic Workbook Statistics Fond bore Nurtur Nignment 092 M A fu in cell E78, by using cell references to cells C73, 073 and E40, calculate the payback period of the project B D E G H c. In this case, did the two methods produce the same results? Generally, is there a preference between the NPV and IRR techniques? Explain. 5B When the decision is simply accept or reject then the NPV and IRR method will always produce the same results. However, when ranking several projects the NPV method is preferred over the IRR method because the IRR method assumes the cashflows are reinvested at the IRR not the required cost of capital. 59 60 Is the statement above true or false? The statement is 61 62 d. Calculate the payback period for the project. If the firm usually accepts projects that have payback periods between 1 and 7 years, is this project acceptable? 63 64 55 Year 0 Payback $ -15,000,000 66 = Chapter 10 + Hellmprove Office Calculation Mode Automat Workbook Statistics N22 K AB D d. Calculate the payback period for the project. If the firm usually accepts projects that have payback periods between 1 and 7 years, is this project acceptable? 63 64 65 Year 0 Payback $ -15,000,000 66 67 1 2 68 69 3 20 4 71 72 6 73 7 8 74 75 9 Chapter 10 Calculation Mode: Automatic Workbook Statistics N82 T A B U D E F G H I 75 9 10 76 77 78 Payback period (years) 79 80 Since the payback period is 7 years the project is 81 Points 1 84 82 83 Requirements 1 In cell D47, by using cell references to the given data and the function NPV, calculate the net present value of the project. 2 In cell C49, type either Accept or Reject depending on whether you would take on the 85 project or not, based on the NPV rule. 3 In cell F49, type either > or or or or