Laurman, Inc. is considering the following project: Required investment in equipment Project life Salvage value The project would provide net operating income each year as follows: Sales Variable expenses Contribution margin Fixed expenses: Salaries, rent and other fixed out-of pocket costs Depreciation Total fixed expenses Net operating income Company discount rate Required: 5 4 Required: 1. Compute the annual net cash inflow from the project. 2. Complete the table to compute the net present value of the investment. (Use cells A4 to C18 from the given information to complete this question. Negative amounts or amounts to be deducted should be input and displayed as negative values.) fx Initial investment Annual cost savings Salvage value of the new machine Total cash flows Discount factor Present value of the cash flows 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 $2,205,000 4. Compute the project's payback period. 5. Compute the project's simple rate of return. 7 225,000 $520,000 350,000 (Use cells A4 to C18 from the given information to complete this question. Negative amounts or amounts to be deducted should be input and displayed as negative values.) B 18% Now $2,750,000 1,600,000 $1,150,000 1.00000 870,000 $280,000 years 1 through 7 D Year(s) E 7
Laurman, Inc. is considering the following project: Required investment in equipment Project life Salvage value The project would provide net operating income each year as follows: Sales Variable expenses Contribution margin Fixed expenses: Salaries, rent and other fixed out-of pocket costs Depreciation Total fixed expenses Net operating income Company discount rate Required: 5 4 Required: 1. Compute the annual net cash inflow from the project. 2. Complete the table to compute the net present value of the investment. (Use cells A4 to C18 from the given information to complete this question. Negative amounts or amounts to be deducted should be input and displayed as negative values.) fx Initial investment Annual cost savings Salvage value of the new machine Total cash flows Discount factor Present value of the cash flows 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 $2,205,000 4. Compute the project's payback period. 5. Compute the project's simple rate of return. 7 225,000 $520,000 350,000 (Use cells A4 to C18 from the given information to complete this question. Negative amounts or amounts to be deducted should be input and displayed as negative values.) B 18% Now $2,750,000 1,600,000 $1,150,000 1.00000 870,000 $280,000 years 1 through 7 D Year(s) E 7
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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Transcribed Image Text:5
7
3
5 Contribution margin
2 Fixed expenses:
}
3 Salaries, rent and other fixed out-of pocket costs
$
5
6
Laurman, Inc. is considering the following project:
35
Required investment in equipment
Project life
Salvage value
9
The project would provide net operating income each year as follows:
Sales
Variable expenses
8
Depreciation
Total fixed expenses
Net operating income
Company discount rate
Required:
Required:
n
(Use cells A4 to C18 from the given information to complete this question. Negative amounts or amounts to be deducted should be input and displayed as negative values.)
X✓ fx
3
41. Compute the annual net cash inflow from the project.
5
5 2. Complete the table to compute the net present value of the investment.
2
3
O Initial investment
Annual cost savings
2 Salvage value of the new machine
3 Total cash flows
$2,205,000
Discount factor
5 Present value of the cash flows
Net present value
7
8 Use Excel's PV function to compute the present value of the future cash flows
Deduct the cost of the investment
ONet present value
1
3. Use Excel's RATE function to compute the project's internal rate of return
3
44. Compute the project's payback period.
5
5 5. Compute the project's simple rate of return.
7
7
225,000
B
$520,000
350,000
18%
1
(Use cells A4 to C18 from the given information to complete this question. Negative amounts or amounts to be deducted should be input and displayed as negative values.)
2
Now
$2,750,000
1,600,000
$1,150,000
1.00000
870,000
$280,000
years
C
1 through 7
Year(s)
D
r
E
7
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