1 2 Laurman, Inc. is considering the following project: 3 4 Required investment in equipment 5 Project life 6 Salvage value 7 8 9 The project would provide net operating income each year as follows: Sales Variable expenses 10 11 Contribution margin 12 13 14 15 16 Fixed expenses: Salaries, rent and other fixed out-of pocket costs Depreciation Total fixed expenses Net operating income Company discount rate 17 18 19 20 Required: 21 29 30 Initial investment 31 Annual cost savings 32 Salvage value of the new machine 33 Total cash flows i 34 Discount factor 35 Present value of the cash flows 36 Net present value 37 38 Use Excel's PV function to compute the present value of the future cash flows 39 Deduct the cost of the investment i 40 Net present value 41 42 3. Use Excel's RATE function to compute the project's internal rate of return 43 44 4. Compute the project's payback period. 45 B 46 5. Compute the project's simple rate of return. 47 $2,205,000 7 225,000 $520,000 350,000 (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 de 22 and will display in parentheses.) 23 24 1. Compute the annual net cash inflow from the project. 25 26 2. Complete the table to compute the net present value of the investment. 27 28 18% $630,000 Now ($2,205,000.00) $2,750,000 1,600,000 $1,150,000 ($2,205,000.00) 870,000 $280,000 1 through 7 years Year(s) ($2,205,000.00) $630,000.00 1.00000 $630,000.00 D 7 $225,000.00 $225,000.00

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