Chapter 14: Applying Excel Data Example E Cost of equipment needed Working capital needed Overhaul of equipment in four years Salvage value of the equipment in five years Annual revenues and costs: Sales revenues Cost of goods sold Out-of-pocket operating costs Discount rate $60,000 $100,000 $5,000 $10,000 $200,000 $125,000 $35,000 14% Enter a formula into each of the cells marked with a ? below Exhibit 14-8 Years 3 Now 1 2 In 4 5 ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? Purchase of equipment Investment in working capital Sales Cost of goods sold Out-of-pocket operating costs Overhaul of equipment Salvage value of the equipment Working capital released Total cash flows (a) Discount factor (14%) (b) Present value of cash flows (a) (b) Net present value ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? *Use the formulas from Appendix 13B: Present value of $1 = 1/(1+r)^n Present value of an annuity of $1 = = (1/r)*(1-(1/(1+r)^n)) where n is the number of years and r is the discount rate A B C Chapter 14: Applying Excel 1 2 3 4 5 6 Data Example E Cost of equipment needed Working capital needed Overhaul of equipment in four years Salvage value of the equipment in five years Annual revenues and costs: Sales revenues Cost of goods sold Out-of-pocket operating costs Discount rate S S S S 40.000 50.000 5,000 30,000 7 8 9 10 S S S 11 12 13 365.000 275.000 80,000 13% 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.) Net present value c. The Internal rate of retum 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.)? The internal rate of return is between and d. Reset the discount rate to 13%. Suppose the salvage value is uncertain. How large would the salvage value have to be to result in a positive net present value? Minimum salvage value required to generate a positive present value