Required information Excel Analytics 14-1 (Algo) Internal Rate of Return (LO14-2, LO14-3] Henderson Company has an opportunity to manufacture and sell a new product for a five-year period. The company estimated the following costs and revenues for the new product: Cost of new equipment Initial working capital required Overhaul of the equipment after three years Salvage value of the equipment after five years $420,000 $110,000 $ 50,000 $ 30,000 Annual revenues and costs: Sales Variable expenses Fixed out-of-pocket operating costs $850,000 $500,000 $196,000 When the project concludes in five years the working capital will be released for investment elsewhere in the company. Click here to download the Excel template, which you will use to answer the questions that follow. Click here for a brief tutorial on Goal Seek in Excel. When utilizing Goal Seek you should proceed as follows: 1. Under the Data" tab click on the "What-If Analysis" drop down in the "Forecast" section 2. From that drop down select "Goal Seek" 3. A "Goal Seek" option box will appear with three values to be manipulated a. The first input is Set cell which is the cell with linked formulas that you want to change to a specific outcome. Here you will select the specified outcome cell or type in the cell value manually. b. The second input is "To value which is the desired goal or outcome that you want the cell you selected in the first input to be changed to. For example, if you want to break even, you could set this value to 0 or if you wanted profit of $5,000 you could input 5000. c. The third and final input is By changing cell is the cell that contains the variable you want to change that is linked to the formulaic output cell that was chosen in the Set cell input 4. Click OK 5. Now the "Set cell should have been modified to the "To value" you chose as well as the cell value that you designated as the "By changing cell variable. A13 x fc Fixed out-of-pocket operating costs B D G H K M N O P E F Blue cells can be modified 0.0% Now $ $ 1 2 3 4 5 (420,000) (80,000) $ (50,000) $ 30,000 $ 80,000 $ 850,000 $ 850,000 $ 850,000 $ 850,000 $ 850,000 $ (500,000) $ (500,000 $ (500,000) $ (500,000) $ (500,000) $ (200,000) $ (200,000) $ (200,000) $ (200,000) $ (200,000) (500,000) $ 150,000 $ 150,000 $ 100,000 $ 150.000 $ 260,000 1.000 1.000 1.000 1.000 1.000 1.000 (500,000) $ 150,000 $ 150,000 $ 100,000 $ 150,000 $ 260,000 310,000 $ $ $ 3 Discount rate 4 5 6 Purchase of equipment 7 Investment in working capital 3 Overhaul of equipment Salvage value of the equipment O Working capital released 1 Sales 2 Variable expenses 3 Fixed out-of-pocket operating costs 4 Total cash flows (a) 5 Discount factor (b) 6 Present value of cash flows (a) (b) 7 Net present value (SUM B16:16) 8 9 CO 1 -2 -3 -4 -5 -6 -7 -8 9 FO : 1 Goal Seek Template + Required: 1. One method for computing the internal rate of return relies on computing the factor of the internal rate of return as shown below: Factor of the internal rate of return Investment required Annual net cash inflow Can this equation be used to calculate the internal rate of return for Henderson Company? Why? Complete this question by entering your answers in the tabs below. Reg 1A Reg 1B Which of the following statements is true with respect to this equation? Olt can be used to calculate the internal rate of return in this instance because the net cash inflows are the same every year. Olt cannot be used to calculate the internal rate of return in this instance because the net cash inflows are not the same every year. Required: 1. One method for computing the internal rate of return relies on computing the factor of the internal rate of return as shown below: Factor of the internal rate of return Investment required Annual net cash inflow Can this equation be used to calculate the internal rate of return for Henderson Company? Why? Complete this question by entering your answers in the tabs below. Req 1A Reg 1B 1b. If this equation cannot be used to calculate the internal rate of return explain why. Because the net cash inflows are the same every year. O Because the net cash inflows are not the same every year.