Please help. Incorrect and missing information from the previous tutor.

Please show your work in the Excel template (see below) and provide a thorough explanation of the following questions.

• Please use the following link to review the Excel template and to show your work: https://docs.google.com/spreadsheets/d/1d-y3N676Dj9Wiwy_Z1pNx4xC93L8PCOznA0_edrWjyY/edit?usp=sharing

Question:

Audio Partners needs to invest in the next level of technology in order to be competitive. The company is exploring the purchase of a new piece of equipment that will cost $1,500,000, at an expected discount rate of 8%. The equipment is expected to return net cash inflows of $250,000 over the next 10 years.

Based on the above information and using the providedExcel template (https://docs.google.com/spreadsheets/d/1d-y3N676Dj9Wiwy_Z1pNx4xC93L8PCOznA0_edrWjyY/edit?usp=sharing), calculate the following items for this proposed equipment purchase:

1. Net Present Value
2. Internal Rate of Return
3. Payback Period

Here is the previous tutor answer I received, but the formulas don't match up with the template, and it doesn't provide information on the cumulative cash flows.

• Net Present Value (NPV): In cell B9 of the Excel template, the NPV calculation is performed using the formula "=NPV(B3,B5:K5)-B2". The discount rate of 8% is provided in cell B3, and the net cash inflows of $250,000 over the next 10 years are listed in cells B5 to K5. Subtracting the initial cost of $1,500,000 (listed in cell B2) gives the NPV result.
• 2. Internal Rate of Return (IRR): The IRR calculation is performed in cell B10 using the formula "=IRR(B5:K5)". The net cash inflows over the next 10 years are listed in cells B5 to K5.
• 3. Payback Period: The payback period calculation is done in cell B11 using the formula "=PAYBACK(B5:K5)". This formula calculates the number of periods required to recover the initial investment.
• 4. Recommendation: Based on the calculations, the company should consider the NPV, IRR, and payback period results to make an informed decision.
• 5. Importance of the calculations: The calculations in Part 1 are essential for evaluating the financial viability of the equipment purchase. They provide a quantitative analysis of the potential profitability and return on investment. The NPV indicates the present value of the future cash inflows, considering the discount rate. The IRR shows the rate at which the investment breaks even, and the payback period reveals how long it takes to recover the initial investment.
• 6. Purchase Recommendation: To determine whether the equipment should be purchased, it is necessary to consider the results from the calculations in Part 1 and additional factors. Without the additional factors, based solely on the calculations, the decision should be made as follows:
• a) Net Present Value (NPV): If the NPV is positive, it suggests that the investment is expected to generate positive returns and is therefore favorable. If the NPV is negative, it indicates that the investment is expected to result in a loss.
• b) Internal Rate of Return (IRR): If the IRR exceeds the company's required rate of return or hurdle rate, it suggests that the investment is financially attractive. A higher IRR indicates a higher potential return.
• c) Payback Period: A shorter payback period is generally preferred as it indicates a quicker recovery of the initial investment. If the payback period is within an acceptable timeframe set by the company, it may be considered favorable.
• 7. Non-quantitative factors: When making a capital budgeting decision, it is crucial to consider non-quantitative factors alongside the calculations;
• a) Technological Advancement: Evaluate if the new equipment aligns with the company's long-term strategy and vision for staying competitive in the industry. Assess its compatibility with future advancements and potential obsolescence risks.
• b) Market Analysis: Consider the demand for the company's products/services and the potential impact of the new equipment on market positioning. Analyze market trends, competition, and customer preferences to ensure the investment aligns with market dynamics.
• c) Operational Impact: Assess the potential impact of the new equipment on operational efficiency, production capacity, and overall business processes. Consider factors such as training requirements, maintenance costs, and potential disruptions during implementation.

Explanation:

• The calculations made in Part 1 of this assignment, namely the Net Present Value (NPV), Internal Rate of Return (IRR), and Payback Period, are essential for determining whether or not the suggested equipment purchase is financially feasible and profitable. These calculations offer numerical measurements that support assessing the possible returns on the investment and the length of time needed to reimburse the initial investment.
• The predicted cash inflows during the investment's lifetime are factored into the net present value and are discounted by the given rate of 8%. The NPV establishes whether an investment is anticipated to yield a positive or negative return by deducting the initial cost from the present value of these cash flows. A positive NPV indicates the possible profitability of the investment, whereas a negative NPV indicates the possibility of a loss.
• The discount rate at which the net present value of the cash inflows equals zero is determined by the internal rate of return. The investment is considered to be financially attractive if the IRR is higher than the company's needed rate of return or hurdle rate. The IRR is a useful indicator for comparing investment opportunities since a higher IRR denotes a higher prospective return.
• Based on net cash inflows, the Payback Period shows how long it will take to recover the initial investment. Generally speaking, a shorter payback period is desired as it denotes a speedier return of the cash invested. A shorter payback period indicates a lesser probability of not recovering the investment, which is helpful for evaluating the investment's liquidity and risk.
• Although these computations offer priceless financial insights, it is also crucial to take non-quantitative aspects into account. The decision-making process can be strongly influenced by elements including technical development, market analysis, and operational impact. A more thorough evaluation of the investment's potential rewards and hazards is ensured when these non-quantitative aspects are considered alongside the financial calculations. This results in a more educated capital budgeting choice.