NOTE: Throughout this lab, every time a screenshot is requested, use your computer's screenshot tool, and paste each screenshot to the same Word document. Label each screenshot in accordance to what is noted in the lab. This document with all of the screenshots included should be uploaded through Connect as a Word or PDF document when you have reached the final step of the lab. In this lab, you will: Required: 1. Calculate the net cash flows over the life of each investment. 2. Use IRR to evaluate the potential capital investments. Ask the Question: How can IRR be used to evaluate potential capital investments? Master the Data: Apply the same steps as Lab 9-5 to the Lab 9-5 Alt Data.xlsx dataset. Duraplex Roofing is looking to buy several types of equipment. The equipment requires an investment in Year 0 and is expected to increase profits over Years 17. In Year 8, Duraplex is expected to be sold for its salvage value. The cost of capital for Duraplex Roofing is 8 percent. Software needed Excel Screen capture tool (Windows: Snipping Tool; Mac: Cmd+Shift+4) Data: Excel File Lab 9-5 Alt Data.xlsx. Perform the Analysis: Refer to Lab 9-5 Alternate in the text for instructions and Lab 9-5 steps for each the of lab parts. Share the Story: We have done one level of analysis, the internal rate of return, to evaluate the profitability of Investments 13. A B E A w NP 5 6 7 8 9 10 11 Year Year 0 (today) Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Buy New Equipment Increased Profits Increased Profits Increased Profits Increased Profits Increased Profits Increased Profits Increased Profits Salvage Value Investment 1 Investment 2 Investment 3 (100,000) (110,000) (130,000) 8,000 11,000 9,000 11,000 10,000 11,000 11,000 11,000 12,000 20,000 11,000 13,000 50,000 11,000 14,000 50,000 11,000 100,000 80,000 130,000 12 Required: 1. According to the IRR analysis, which investment is most profitable over the life of the investment? O Investment 2 O Investment 1 O Investment 3 2. According to the IRR analysis, which investment is least profitable over the life of the investment? Investment 2 O Investment 1 O Investment 3 3. What is the amount of net cash flows (not discounted) over the life of Investment 2? $110,000 $90,000 O $80,000 $77,000 4. If the cost of capital is 8%, will a company that that would pay $100,000 investment in equipment in year 0, and then receives $21,000 per year each of the next eight years (but no salvage value) make the investment? O Yes O No 5. What would the net cash flows (not discounted) for a company that makes a $100,000 investment in year 0, and then receives $21,000 per year each of the next eight years? $68,000 $100,000 $268,000 O $168,000
