Question:

Use the information in the textbook on pg. 9.18 Exhibit 9.7 to determine the NPV of the O'Sullivan's new printing press using a 15% discount rate.

shows a spreadsheet detailing all the cash flows of OSullivans proposed purchase using the incremental approach. After constructing the spreadsheet, insert the NPV function in the desired cell to open the functions dialog box. Enter the discount rate in the rate box and the cell addresses of the annual net cash flows, rather than the amounts, in the value 1 box. Do not include the current periods cash flows in the value 1 box; however, you must edit the NPV formula to add the year 0 cash flows to the NPV function results. An advantage of this method is that it is easy to adjust the cash flow information in the worksheet as parameters change and have the net present value recalculate automatically.

B D H M B9 fx =NPV(0.12,C7:L7) E F G K 1 Year o Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 2 Purchase & installation $(60,000) 3 Salvage of old equipment $ 3,000 4 Operating cost savings $ 9,000 $9,000 $9,000 $9,000 $9,000 $9,000 $9,000 $9,000 $9,000 $9,000 5 Overhaul avoided $ 10,000 6 Salvage of new equipment $ 5,000 7 Annual net cash flow $(57,000) $ 9,000 $ 19,000 $9,000 $9,000 $9,000 $9,000 $9,000 $9,000 $9,000 $14,000 8 9 Present value of future cash flows $ 60,434 Function Arguments 10 NPV 11 Net present value $ 3,434 Rate .12 = 0.12 13 Value1 C7:L7 {9000, 19000, 9000, 9000, 9000, 9000,901 14 Values number 15 Value 3 number 16 X 12 17 18 19 = 60433.81221 Returns the net present value of an investment based on a discontrate and a series of future payments (negative values) and income (positive values). Value2: value 1, Value2... are 1 to 254 payments and income, equally spaced in time and occurring at the end of each period. 20 21 22 23 24 Formula result = $ 60,434 25 Help on this function OK Cancel