XHIBIT 14-8 me Net Present Value Method-An Extended Example B 0 2 G 1 Year 2 Now 1 3 5 3. Purchase of equipment $ (60,000) 4 Investment in working capital $ (100,000) 5 Sales $ 200,000 $ 200,000 $ 200,000 $ 200,000 $ 200,000 6 Cost of goods sold $ (125,000) $ (125,000) S (125,000) $ (125,000) S (125,000) 7 Out-of-pocket costs for salaries, advertising, etc. $ 135,000) $ (35,000) $ (35,000) $ (35,000) S (35,000) 8 Overhaul of equipment $ (5,000) 9 Salvage value of the equipment $ 10,000 10 Working capital released $ 100,000 11 Total cash flows (a) $ (160,000) $ 40,000 $ 40,000 $ 40,000 $ 35,000 150,000 12 Discount factor (14%) (b) 1.000 0.877 0.769 0.675 0.592 $ 0.519 22 present value of cash flows (a) (b) $ 160,000) $ 35,080 S 30,760 $ 27,000 $ 20,720 $ 77,850 14 Net present value (SUM B13:013) 31.410 15 16 Note: The discount factors come from Exhibit 148-1 in Appendix 148. 17 HH Exhibit 14-8 Bbt 166 Exhibit 14-10 Bhbt 14:11 Ehbi14 Source: Microsoft Excel 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 148-1 and Exhibit 14B-2. (Use appropriate factors) from the tables provided.) of 2 B $ $ A 1 Chapter 14: Applying Excel 2 3 Data 4 Examples 5 Cost of equipment needed 6 Working capital needed 7 Overhaul of equipment in four years 8 Salvage value of the equipment in five years 9 Annual revenues and costs 10 Sales revenues 11 Cost of goods sold 12 Out-of-pocket operating costs 13 Discount rate 340,000 20,000 25.000 30,000 ences $ $ S 5 415,000 255,000 75,000 10 % 5 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.) Postprocent c. The internal rate of return is between what two whole discount rates (9 between 10% and 11%, between 11% and 12%, between 12% and 13%, between 13% and 14%, etc.)? The internet of motum is between % and % d Reset the discount rate to 10%. Suppose the salvage value is uncertain How large would the salvage value have to be to result in a positive net present value? Minimum wage tred te generate a positive value