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1. Determine the payback period for an investment 2. Evaluate the acceptability of an investment project using the net present value method. 3. Evaluate the acceptability of an investment project using the internal rate of return method. 4. Compute the simple rate of return for an investment. KS. ? 5 x FILE HOME INSERT Sign In X Calibri - 11 Comparison of Capital Budgeting Methods - Excel PAGE LAYOUT FORMULAS DATA REVIEW VIEW AA % A Alignment Number Conditional Format as Cell Formatting Table Styles Styles f Laurman, Inc. is considering the following project: M Cells Editing Paste BIU Clipboard Font A A1 X > A B D E 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 7 $ 6. The project would provide net operating income each year as follows: Sales Variable expenses Contribution margin 8 2,750,000 1,600,000 1,150,000 S C D $ 2,750,000 1,600,000 1,150,000 9 $ $ 1 Laurman, Inc. is considering the followibe project: 2 Required investment in equipment $ 2,205,000 3 Project life 7 4 Salvage value 225,000 5 5 The project would provide net operating income each year as follows: 7 Sales 8 Variable expenses Contribution margin 10 Fixed expenses: 11 Salaries, rent and other fixed out of pocket costs 520,000 12 Depreciation 350,000 13 Total fixed expenses Net operating income 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 22 Years Now 17 870,000 280.000 14 S. 7 Sheet1 + In this simulation, you will need to enter the discount factor for both the annual cost savings and salvage value on standard formula for calculating the discount factors. So, here are the guidelines for entering the factor Annual Cash Savings: =(1/Company Discount Rate)"(1-(1/(1+Company Discount Rate) Project Life) Salvage Value =1/(1+Company Discount Rate) Project Life You will also need to use the =PV function to calculate the cash flows. The set up for this function should be =-PV(Company Discount Rate, Project Life, Annual Net Cash Inflow, Salvage Value)

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