1 Laurman, Inc. is considering the following project: 2 Required investment in equipment 3 Project life 4 Salvage value 2,205,000 7 225,000 6 The project would provide net operating income each year as follows: 7 Sales 8 Variable expenses 9 Contribution margin 10 Fixed expenses: 2,750,000 1,600,000 1,150,000 11 Salaries, rent and other fixed out-of pocket costs 520,000 12 Depreciation 350,000 13 Total fixed expenses 870,000 14 Net operating income 280.000 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) 1-7 23 Now 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. years 39 40 5. Compute the project's simple rate of return. 41 42 %24 %24
1 Laurman, Inc. is considering the following project: 2 Required investment in equipment 3 Project life 4 Salvage value 2,205,000 7 225,000 6 The project would provide net operating income each year as follows: 7 Sales 8 Variable expenses 9 Contribution margin 10 Fixed expenses: 2,750,000 1,600,000 1,150,000 11 Salaries, rent and other fixed out-of pocket costs 520,000 12 Depreciation 350,000 13 Total fixed expenses 870,000 14 Net operating income 280.000 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) 1-7 23 Now 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. years 39 40 5. Compute the project's simple rate of return. 41 42 %24 %24
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Laurman inc. is considering the following project:
Please provide excel formulas for all answers
Transcribed Image Text:1 Laurman, Inc. is considering the following project:
2 Required investment in equipment
3 Project life
4 Salvage value
2,205,000
7
225,000
5
6 The project would provide net operating income each year as follows:
7
Sales
2,750,000
8 Variable expenses
1,600,000
Contribution margin
10 Fixed expenses:
1,150,000
11
Salaries, rent and other fixed out-of pocket costs
520,000
12
Depreciation
350,000
13 Total fixed expenses
870,000
14 Net operating income
280,000
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
24 Initial investment
25 Annual cost savings
26 Salvage value of the new machine
27 Total cash flows
28 Discount factor
29 Present value of the cash flows
30 Net present value
1.000
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.
years
39
40 5. Compute the project's simple rate of return.
41
42
%24
%24
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