1. Compute the annual net cash inflow from the project. $630,000 2. Complete the table to compute the net present value of the investment. Year(s) Now 1 through 7 7 Initial investment ($2,205,000.00) Annual cost savings $630,000.00 Salvage value of the new machine $225,000.00 Total cash flows ($2,205,000.00) $630,000.00 $225,000.00 Discount factor 1.00000 3.81153 0.31393 Present value of the cash flows ($2,205,000.00) $2,401,262.38 $70,633.13 Net present value Use Excel's PV function to compute the present value of the future cash flows Deduct the cost of the investment Net present value 3. Use Excel's RATE function to compute the project's internal rate of return 22.04% 4. Compute the project's payback period. years 5. Compute the project's simple rate of return
1. Compute the annual net cash inflow from the project. $630,000 2. Complete the table to compute the net present value of the investment. Year(s) Now 1 through 7 7 Initial investment ($2,205,000.00) Annual cost savings $630,000.00 Salvage value of the new machine $225,000.00 Total cash flows ($2,205,000.00) $630,000.00 $225,000.00 Discount factor 1.00000 3.81153 0.31393 Present value of the cash flows ($2,205,000.00) $2,401,262.38 $70,633.13 Net present value Use Excel's PV function to compute the present value of the future cash flows Deduct the cost of the investment Net present value 3. Use Excel's RATE function to compute the project's internal rate of return 22.04% 4. Compute the project's payback period. years 5. Compute the project's simple rate of return
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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I need help filling out the empty fields. Can you please include the formulas:
Laurman, Incorporated is considering the following project: | |||||
Required investment in equipment | $2,205,000 | ||||
Project life | 7 | ||||
Salvage value | 225,000 | ||||
The project would provide net operating income each year as follows: | |||||
Sales | $2,750,000 | ||||
Variable expenses | 1,600,000 | ||||
Contribution margin | $1,150,000 | ||||
Fixed expenses: | |||||
Salaries, rent and other fixed out-of pocket costs | $520,000 | ||||
350,000 | |||||
Total fixed expenses | 870,000 | ||||
Net operating income | $280,000 | ||||
Company discount rate | 18% | ||||
Required: | |||||
(Use cells A4 to C18 from the given information, as well as B24, and A30 to D46 to complete this question. Negative amounts or amounts to be deducted should be input as negative values and will display in parentheses.) | |||||
1. Compute the annual net |
$630,000 | ||||
2. Complete the table to compute the |
|||||
Year(s) | |||||
Now | 1 through 7 | 7 | |||
Initial investment | ($2,205,000.00) | ||||
Annual cost savings | $630,000.00 | ||||
Salvage value of the new machine | $225,000.00 | ||||
Total cash flows | ($2,205,000.00) | $630,000.00 | $225,000.00 | ||
Discount factor | 1.00000 | 3.81153 | 0.31393 | ||
Present value of the cash flows | ($2,205,000.00) | $2,401,262.38 | $70,633.13 | ||
Net present value | |||||
Use Excel's PV function to compute the present value of the future cash flows | |||||
Deduct the cost of the investment | |||||
Net present value | |||||
3. Use Excel's RATE function to compute the project's |
22.04% | ||||
4. Compute the project's payback period. | years | ||||
5. Compute the project's simple rate of return. | |||||
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