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Chapter 7: Applying Excel
Data
Example E
Cost of equipment needed	$360,000
Working capital needed	$30,000
Overhaul of equipment in four years	$25,000
Salvage value of the equipment in five years	$30,000
Annual revenues and costs:
Sales revenues	$430,000
Cost of goods sold	$245,000
Out-of-pocket operating costs	$90,000
Discount rate	12	%

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 7B-1 and Exhibit 7B-2. (Use appropriate factor(s) from the tables provided.)

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.)

c. The internal rate of return is between what two whole discount rates (e.g., between 10% and 11%, between 11% and 12%, between 12% and 13%, between 13% and 14%, etc.)?

d. Reset the discount rate to 12%. Suppose the salvage value is uncertain. How large would the salvage value have to be to result in a positive net present value?

Answer 1