Week 8: Excel Simulation - Capital Budgeting 0 Saved 1. Determine the payback period for an investment. 2. Evaluate the acceptability of an investment project using the net present value method. 3. Evaluate the acceptability of an investment project using the internal rate of return method. 4. Compute the simple rate of return for an investment. XU. ? 5 X Comparison of Capital Budgeting Methods - Excel PAGE LAYOUT FORMULAS DATA REVIEW FILE HOME INSERT VIEW Sign In 65 points Calibri -11 - Skipped Paste BIU- A % A Alignment Number Conditional Format as Cell Formatting Table Styles Styles Cells Editing Clipboard Font A1 Laurman, Inc. is considering the following project: eBook D E Ask Print 5 $ S References 2,750,000 1,600,000 1,150,000 $ B 1 Laurman, Inc. is considering the followihg project: 2 Required investment in equipment S 2,205,000 3 Project life 7 7 4 Salvage value 225,000 5 6 The project would provide net operating income each year as follows: 7 Sales 8 Variable expenses 9 Contribution margin 10 Fixed expenses: 11 Salaries, rent and other fixed out of pocket costs $ 520,000 12 Depreciation 350,000 13 Total fixed expenses 14 Net operating income 15 16 Company discount rate 18% 17 18 1. Compute the annual net cash inflow from the project. 19 20 2. Complete the table to compute the net present value of the investment. 21 22 Year(s) 23 Now 1-7 870,000 280.000 $ 7 Sheet1 ... + 1 1. Determine the payback period for an investment. 2. Evaluate the acceptability of an investment project using the net present value method. 3. Evaluate the acceptability of an investment project using the internal rate of return method. 4. Compute the simple rate of return for an investment. x] 5- ? X Comparison of Capital Budgeting Methods - Excel PAGE LAYOUT FORMULAS DATA REVIEW FILE HOME INSERT VIEW Sign In 65 points % Calibri 11 AA % Skipped Paste B I U Cells Editing Alignment Number Conditional Format as Cell Formatting Table Styles Styles Clipboard Font A1 X fa Laurman, Inc. is considering the following project: eBook B D E 19 Ask Print 7 References 20 2. Complete the table to compute the net present value of the investment. 21 22 Year(s) 23 Now 1-7 24 Initial investment 25 Annual cost savings 26 Salvage value of the new machine 27 Total cash flows 28 Discount factor 1.000 29 Present value of the cash flows 30 Net present value 31 32 Use Excel's PV function to compute the present value of the future cash flows 33 Deduct the cost of the investment 34 Net present value 35 36 3. Use Excel's RATE function to compute the project's internal rate of return 37 38 4. Compute the project's payback period. 39 40 5. Compute the project's simple rate of return. 41 years Sheet1
