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In this simulation, you will need to enter the discount factor for both the annual cost savings and salvage value on line 29. We did not cover the 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)

Determine the payback period for an investment. Evaluate the acceptability of an investment project using the net present value method. Evaluate the acceptability of an investment project using the internal rate of return method. Compute the simple rate of return for an investment.

FILE HOME INSERT PAGE LAYOUT FORMULAS DATA REVIEW VIEW Sign In Calibri % Paste BIU A Cells Editing Alignment Number Conditional Format as Cell Formatting Table Styles Styles Clipboard Font A1 X Laurman, Inc. is considering the following project: B C D E 2,205,000 7 225,000 4 $ 2,750,000 1,600,000 1,150,000 $ 1 Laurman, Inc. is considering the following project: 2 Required investment in equipment $ 3 Project life Salvage value 5 6 The project would provide net operating income each year as follows: 7 Sales 8 Variable expenses 9 Contribution margin 10 Fixed expenses: 11 Salaries, rent and other fixed out-of pocket costs $ 12 Depreciation 13 Total fixed expenses 14 Net operating income 15 16 Company discount rate 18% 17 18 1. Compute the annual net cash inflow from the project. 19 520,000 350,000 870,000 280,000 $ 20 I-t ...LI. 7 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. 21 22 Year(s) 23 Now 1-7 24 Initial investment 25 Annual cost savings 26 Salvage value of the new machine 27 Total cash flows 28 Discount factor 1.000 29 Present value of the cash flows 30 Net present value 31 32 Use Excel's PV function to compute the present value of the future cash flows 33 Deduct the cost of the investment 34 Net present value 35 36 3. Use Excel's RATE function to compute the project's internal rate of return 37 38 4. Compute the project's payback period. years Sheet1 READY 1 100% Attempt(s) Hint Show Me A1 fx Laurman, Inc. is considering the following project: A B C D E 28 Discount factor 1.000 29 Present value of the cash flows 30 Net present value 31 32 Use Excel's PV function to compute the present value of the future cash flows 33 Deduct the cost of the investment 34 Net present value 35 36 3. Use Excel's RATE function to compute the project's internal rate of return 37 38 4. Compute the project's payback period. 39 40 5. Compute the project's simple rate of return. 41 42 43 years 44 Sheeti READY O IT + 100%

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