Week 8: Excel Simulation - Capital Budgeting i Saved FILE HOME INSERT PAGE LAYOUT FORMULAS DATA REVIEW VIEW Sign In ABC Show/Hide Comment Show All Comments Spelling Research Thesaurus Translate New Delete Previous Next D3 Show Ink Changes Comment Proofing Language Comments A 65 B30 X V fic points A B C D E Skipped 1 Laurman, Inc. is considering the following project: 2 Required investment in equipment 2,205,000 3 Project life 7 4 Salvage value 225,000 eBook 5 6 The project would provide net operating income each year as follows: 7 Sales S 2,750,000 Ask 8 Variable expenses 1,600,000 9 Contribution margin 1,150,000 10 Fixed expenses: Print 11 Salaries, rent and other fixed out-of pocket costs 520,000 12 Depreciation 350,000 13 Total fixed expenses 870,000 References 14 Net operating income 280,000 15 16 Company discount rate 18% 17 18 1. Compute the annual net cash inflow from the project. S 630,000 19 20 2. Complete the table to compute the net present value of the investment.A B C D E Skipped 23 Now 1-7 7 24 Initial investment $ (2,205,000.00) 25 Annual cost savings 630,000.00 26 Salvage value of the new machine 225,000.00 eBook Total cash flows $ (2,205,000.00) $ 630,000.00 225,000.00 28 Discount factor 1.000 3.182 0.314 29 Present value of the cash flows $ (2,205,000.00) $ 2,401,262.38 $ 70,633.13 Ask 30 Net present value 31 32 Use Excel's PV function to compute the present value of the future cash flows Print 33 Deduct the cost of the investment S 2,205,000.00 34 Net present value 35 References 3. Use Excel's RATE function to compute the project's internal rate of return 22.04% 37 38 4. Compute the project's payback period. 3.5 years 39 40 5. Compute the project's simple rate of return. 12.70% 41