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To complete this activity, you will need to have Excel installed on your computer. This exercise requires you to work in Excel and answer questions in Connect. You will read a brief scenario and then download an Excel file that you will need to complete the requirements in Parts $2$ and $3$ of this exercise.

Some of the requirements include brief video tutorials on using Excel functions. After viewing the tutorials, you will then use what you learned to work directly in Excel to answer the required questions in Connect.

Stauffer Company has an opportunity to manufacture and sell a new product for a five$-$year period. The company estimated the following costs and revenues for the new product:

Cost of new equipment $$420,000$

Initial working capital required $$80,000$

Overhaul of the equipment after three years $$50,000$

Salvage value of the equipment after five years $$30,000$

Annual revenues and costs:

Sales $$850,000$

Variable expenses $$500,000$

Fixed out$-$of$-$pocket operating costs $$200,000$

When the project concludes in five years the working capital will be released for investment elsewhere in the company.

Access the text alternative for Excel Analytics: Goal Seek. Will open in a new tab or window. Internet connection required.

Click here for a brief tutorial on Goal Seek in Excel.

$3.$ In the Excel template, using Goal Seek, calculate this investment$$s internal rate of return. If the company$$s hurdle rate is $18\%$ would it be likely to accept or reject the investment? Why?

$4.$ What is the project$$s net present value when using a discount rate of $18\%?$

$5.$ If the company wants to achieve an $18\%$ return on this investment, what is the maximum amount that it can spend each year on fixed out$-$of$-$pocket operating costs? Use Goal Seek to compute your answer. Note: The fixed out$-$of$-$pocket operating costs remain constant for all five years, therefore modifying cell C$13$ automatically updates cells D$13$ through G$13.$

$6.$ If the investment in working capital increased from $$80,000$ to $$100,000$ would you expect the internal rate of return to increase, decrease, or stay the same? No computations are necessary to answer this question.

$7.$ Refer to the original data. Using Goal Seek, calculate the internal rate of return if the investment in working capital increases from $$80,000$ to $$100,000.$ Note: Be sure to return the fixed out$-$of$-$pocket operating costs to the original value of $$(200,000).$