Chapter 12: Applying Excel Data Example E 5.Cost of equipment needed $310,000 6.Working capital needed $45,000 7.Overhaul of equipment in four years $30,000 8.Salvage value of the equipment in five years $40,000 9.Annual revenues and costs: 10.Sales revenues $415,000 11.Cost of goods sold $265,000 12.Out-of-pocket operating costs $50,000 13.Discount rate 17 %
2. The company is considering a project involving the purchase of new equipment. Change the data area of your worksheet to match the following: Use Exhibit 12B-1 and Exhibit 12B-2. (Use appropriate factor(s) from the tables provided.)
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.)
c. The internal rate of return 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.)?
d. Reset the discount rate to 17%. Suppose the salvage value is uncertain. How large would the salvage value have to be to result in a positive net present value?
