Capital Budgeting
Glacier Creek Textiles is planning to purchase new manufacturing equipment. The equipment has an acquisition cost of $100,000, an estimated useful life of five years and no residual value. The company uses a 12% rate of return to evaluate capital projects. The cash flows for the five years:

Year	Net Cash Outflows	Net Cash Inflows
Year	Amount invested	Net Cash Inflows
0	($100,000)
1		25,000
2		29,000
3		26,000
4		28,000
5		35,000


Requirements
1. Compute the accounting rate of return.
2. Compute the net present value of the investment using Excel's PV function.
3. Compute the net present value of the investment using Excel's NPV function.
4. Compute the profitability index, rounded to two decimal places.
5. Compute the internal rate of return of the investment using Excel's IRR function. Display to two decimal places, but do not round.

Excel Skills
1. Function PV
2. Function NPV
3. Function IRR

	Evaluate Glacier Creek Textiles' new manufacturing equipment.

	Data
	Annual discount Rate	0.12
	Cash Flow Year 0 (Cost)	(100,000)
	Cash Flow Year 1	25,000
	Cash Flow Year 2	29,000
	Cash Flow Year 3	26,000
	Cash Flow Year 4	28,000
	Cash Flow Year 5	35,000
	Useful Life in years	5
	Residual value	0



Requirement 1	Compute the Accounting Rate of Return

	Average annual operating income	Average amount invested	Accounting Rate of Return - ARR
	xxxxxxxxxxxxxxxxxxxxxxxxxxxxxx	xxxxxxxxxxxxxx	xxxxxxxxxxxxxxxxx



Requirement 2	Compute the net present value of the investment using Excel's PV function.

	Period	Cash Flows
	1	(22,321)	Note: The first period is shown as an example.
	2	xxxxxxxx
	3	xxxxxxxx
	4	xxxxxxxx
	5	xxxxxxxx
	Present value of net cash flows	xxxxxxxx	Note: PV calculates the present value as a negative amount.
	Cost of Asset	xxxxxxxx
	Net Present Value	xxxxxxxx



Requirement 3	Compute the net present value of the investment using Excel's NPV function


	Present value of net cash flows	xxxxxxxxxx
	Cost of asset	xxxxxxxxxx
	Net Present Value	xxxxxxxxxx


Requirement 4	Compute the profitability index, rounded to two decimal places.

	Profitability index	xxxxxxxxxx


Requirement 5	Compute the internal rate of return of the investment using Excel's IRR function.
	Display to two decimal places, but do not round.

	IRR	xxxxxxxxx	Note: IRR requires a negative amount for the investment.

Places with xxxxx's are what needs to be filled in, and it's for excel so if I could see the references to which numbers and the formula used that would be helpful. Thank you!!

tanimpala296

Question 1 5 pts

0 multiple_choice_question 22046808

The internal rate of return (IRR) is the interest rate that sets the net present value of the future cash flows equal to ________.

Question 2 5 pts

On a timeline, the space between date 0 and date 1 represents the _______ between dates. Letâs assume it is the first year of the loan. Date 0 is the beginning of the first year, and date 1 is the end of the first year.

Question 3 5 pts

As the interest rate __________, present value decreases.

Question 4 5 pts

The present value (PV) of a stream of cash flows is the _______ the present values of each individual cash flow

Question 5 5 pts

When a constant cash flow will occur at regular intervals for a finite number of periods of time, it is called a(n) __________.

Question 6 5 pts

Edit this Question Delete this Question

0 multiple_choice_question 22047052

There are two basic types of annuities:

Discounted and compounded annuities

Ordinary annuities and annuities due.

Future value and present value annuities

None of the above

Question 7 5 pts

The NPV measures the ______ change in shareholder wealth that arises from undertaking a project.

Question 8 5 pts

The Net Present Value rule implies that we should compare a projectâs net present value (NPV) to ________

Question 9 5 pts

To endow a perpetuity is the same as calculating the present value (PV) of a perpetuity. Say you want to endow an annual graduation party at your alma mater. You want the event to be a memorable one, so you budget $30,000 per year forever for the party. If the university earns 8% per year on its investments, and if the first party is in one yearâs time, how much will you need to donate to endow the party?

The formula for PV of a perpetuity = C\r; = $30,000 \ 0.08; =

To endow a perpetuity is the same as calculating the present value (PV) of a perpetuity. Say you want to endow an annual graduation party at your alma mater. You want the event to be a memorable one, so you budget $30,000 per year forever for the party. If the university earns 8% per year on its investments, and if the first party is in one yearâs time, how much will you need to donate to endow the party?

The formula for PV of a perpetuity = C\r; = $30,000 \ 0.08; =

Question 10 5 pts

With an Ordinary Annuity, payments are required at the ________ of each period. An example of this is bonds which usually pay coupon payments at the end of every six months until the bond's maturity date.

beginning

middle

end

payments are not required

limemacaw827

The management of Opry Company, awholesale distributor of suntan products, is considering t hepurchase of a $29,000 machine that would reduce operating costs inits warehouse by $5,500 per year. At the end of the machine's8-year useful life, it will have no scrap value. The company'srequired rate of retum is 11%. (Ignore income taxes.)

Click here to view Exhibit 88-1 andExhibit 8B-2, to determine the appropriate discount factor(s) usingtable.

Required:

1. Determine the net present valueof the investment in the machine. (Any cash outflows should beindicated by a minus sign. Round discount factor(s) to 3 decimalplaces, intermediate to the nearest dollar amount.)

Present

Item Year(s) Cash Flow 11% Factor Value of

Annual cost savings		$ 0
Initial investment	Now	0
Net present value		$ 0

Cash Flows

1-8 h

2. \llh1at is the differencebetween the total, undiscounted cash inflows and cash outflows overthe entire life of the machine? (Any cash outflows should beindicated by a minus sign.)

Item Cash Flow Years TotalCash

Flows

!

Annual cost savings $ 0

Initial investment $ 0

Net cash flow $

0

mauvetermite390

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