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 | |||||||||
| Amount invested | |||||||||||
| 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!!
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