Required information

Chapter 12: Applying Excel

Step 1: Download the Applying Excel form located on the left-hand side, under files.

Step 2: Then enter formulas in all cells that contain question marks. For example, in cell C21 enter the formula "= B10".

Important Note: The present value factors could be computed using the built-in Excel function PV, but we recommend using the formulas in Appendix 13B.

Step 3: Check your worksheet by changing the discount rate to 10%. The net present value should now be between $56,400 and $56,535 (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.

If you did not use formulas to calculate the Discount Factors, be sure that those values are updated appropriately using the Appendix 13B formulas that are also noted at the bottom of the spreadsheet instead of using the Discount Factor tables.

Step 4: Proceed to the requirements below only after completing your worksheet as it will be used to answer the following questions.

Data
Example E
Cost of equipment needed	$60,000
Working capital needed	$100,000
Overhaul of equipment in four years	$5,000
Salvage value of the equipment in five years	$10,000
Annual revenues and costs:
Sales revenues	$200,000
Cost of goods sold	$125,000
Out-of-pocket operating costs	$35,000
Discount rate	14%
Enter a formula into each of the cells marked with a ? below
Exhibit 12-8
		Years
	Now	1	2	3	4	5
Purchase of equipment	?
Investment in working capital	?
Sales		?	?	?	?	?
Cost of goods sold		?	?	?	?	?
Out-of-pocket operating costs		?	?	?	?	?
Overhaul of equipment					?
Salvage value of the equipment						?
Working capital released						?
Total cash flows (a)	?	?	?	?	?	?
Discount factor (14%) (b)	?	?	?	?	?	?
Present value of cash flows (a) x (b)	?	?	?	?	?	?
Net present value	?
*Use the formulas from Appendix 13B:
Present value of $1 = 1/(1+r)^n
Present value of an annuity of $1 = (1/r)*(1-(1/(1+r)^n))
where n is the number of years and r is the discount rate

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 12B-1 and Exhibit 12B-2. (Use appropriate factor(s) from the tables provided.)

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.)

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?