Question

Laurman, Inc. is considering the following project: Required investment in equipment $2,205,000 Project life 7 Salvage value 225,000 The project would provide net operating income each year as follows: Sales $2,750,000 Variable expenses 1,600,000 Contribution margin $1,150,000 Fixed expenses: Salaries, rent and other fixed out-of pocket costs $520,000 Depreciation 350,000 Total fixed expenses 870,000 Net operating income $280,000 Company discount rate 18% Required: (Use cells A4 to C18 from the given information, as well as B24, and A30 to D46 to complete this question. Negative amounts or amounts to be deducted and will display in parentheses.) 1. Compute the annual net cash inflow from the project. $630,000 2. Complete the table to compute the net present value of the investment. Year(s) Now 1 through 7 7 Initial investment ($2,205,000.00) Annual cost savings $630,000.00 Salvage value of the new machine $225,000.00 Total cash flows ($2,205,000.00) $630,000.00 $225,000.00 Discount factor 1.00000 Present value of the cash flows ($2,205,000.00) Net present value Use Excel's PV function to compute the present value of the future cash flows Deduct the cost of the investment Net present value 3. Use Excel's RATE function to compute the project's internal rate of return 4. Compute the project's payback period. years 5. Compute the project's simple rate of return.

          Laurman, Inc. is considering the following project:
Required investment in equipment $2,205,000
Project life 7
Salvage value 225,000
The project would provide net operating income each year as follows:
Sales $2,750,000
Variable expenses 1,600,000
Contribution margin $1,150,000
Fixed expenses:
Salaries, rent and other fixed out-of pocket costs $520,000
Depreciation 350,000
Total fixed expenses 870,000
Net operating income $280,000
Company discount rate 18%
Required:
(Use cells A4 to C18 from the given information, as well as B24, and A30 to D46 to complete this question. Negative amounts or amounts to be deducted and will display in parentheses.)
1. Compute the annual net cash inflow from the project. $630,000
2. Complete the table to compute the net present value of the investment.
Year(s)
Now 1 through 7 7
Initial investment ($2,205,000.00)
Annual cost savings $630,000.00
Salvage value of the new machine $225,000.00
Total cash flows ($2,205,000.00) $630,000.00 $225,000.00
Discount factor 1.00000
Present value of the cash flows ($2,205,000.00)
Net present value
Use Excel's PV function to compute the present value of the future cash flows
Deduct the cost of the investment
Net present value
3. Use Excel's RATE function to compute the project's internal rate of return
4. Compute the project's payback period. years
5. Compute the project's simple rate of return.

Laurman, Inc. is considering the following project:
Required investment in equipment 2,205,000
Project life 7
Salvage value 225,000
The project would provide net operating income each year as follows:
Sales2,750,000
Variable expenses 1,600,000
Contribution margin 1,150,000
Fixed expenses:
Salaries, rent and other fixed out-of pocket costs520,000
Depreciation 350,000
Total fixed expenses 870,000
Net operating income 280,000
Company discount rate 18%
Required:
(Use cells A4 to C18 from the given information, as well as B24, and A30 to D46 to complete this question. Negative amounts or amounts to be deducted and will display in parentheses.)
1. Compute the annual net cash inflow from the project.630,000
2. Complete the table to compute the net present value of the investment.
Year(s)
Now 1 through 7 7
Initial investment (2,205,000.00)
Annual cost savings630,000.00
Salvage value of the new machine 225,000.00
Total cash flows (2,205,000.00) 630,000.00225,000.00
Discount factor 1.00000
Present value of the cash flows (2,205,000.00)
Net present value
Use Excel's PV function to compute the present value of the future cash flows
Deduct the cost of the investment
Net present value
3. Use Excel's RATE function to compute the project's internal rate of return
4. Compute the project's payback period. years
5. Compute the project's simple rate of return.

Added by Katherine R.

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