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: $2,205,000 7 225,000 $2,750,000 1,600,000 $1,150,000 Salaries, rent and other fixed out-of pocket costs Depreciation Total fixed expenses Net operating income. Company discount rate Required: $520,000 350,000 870,000 $280.000 18% (Use cells A4 to C18 from the given information, as well as 824, and A30 to D45 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 cash inflow from the project. 2. Complete the table to compute the net present value of the investment. $630,000 nitial 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 Excels RATE function to compute the project's internal rate of return 4. Compute the project's payback period. Year(s) Now (52,205,000.00) 1 through 7 7 $630,000.00 152,205,000.001 $630,000.00 $225,000.00 $225,000.00 L00000 You must use the -PV function in your formula years
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: $2,205,000 7 225,000 $2,750,000 1,600,000 $1,150,000 Salaries, rent and other fixed out-of pocket costs Depreciation Total fixed expenses Net operating income. Company discount rate Required: $520,000 350,000 870,000 $280.000 18% (Use cells A4 to C18 from the given information, as well as 824, and A30 to D45 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 cash inflow from the project. 2. Complete the table to compute the net present value of the investment. $630,000 nitial 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 Excels RATE function to compute the project's internal rate of return 4. Compute the project's payback period. Year(s) Now (52,205,000.00) 1 through 7 7 $630,000.00 152,205,000.001 $630,000.00 $225,000.00 $225,000.00 L00000 You must use the -PV function in your formula years
Chapter10: Capital Budgeting: Decision Criteria And Real Option
Section10.A: Mutually Exclusive Investments Having Unequal Lives
Problem 4P
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Transcribed Image Text: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:
$2,205,000
7
225,000
$2,750,000
1,600,000
$1,150,000
Salaries, rent and other fixed out-of pocket costs
Depreciation
Total fixed expenses
Net operating income.
Company discount rate
Required:
$520,000
350,000
870,000
$280.000
18%
(Use cells A4 to C18 from the given information, as well as 824, and A30 to D45 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 cash inflow from the project.
2. Complete the table to compute the net present value of the investment.
$630,000
nitial 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 Excels RATE function to compute the project's internal rate of return
4. Compute the project's payback period.
Year(s)
Now
(52,205,000.00)
1 through 7
7
$630,000.00
152,205,000.001
$630,000.00
$225,000.00
$225,000.00
L00000
You must use the -PV function in your formula
years
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