Hello, I am trying to start this problem on Excel. I can do it in on paper but h
ID: 2659791 • Letter: H
Question
Hello, I am trying to start this problem on Excel. I can do it in on paper but how do I do about working on it using Excel? Calculate the NPV for the folloing capital budgeting proposal: $100,000 initial cost, to be depreciated staright-line over 5 years to an expected salvage value of $5,000, a 35% tax rate, $45,000 additional annual revenues, $15,000 additiuonal annual expense, an $8,000 additional investment in working capital. The company has an 11% cost of capital. Solve the problem in a spreadsheetExplanation / Answer
Formula used for calculation for NPV:
=NPV(11%, C13:G13)+B13
where
C13 to G13 are cash flows from year 1 to year 5; and
B13 is initial year cash flow (it is added because its a negative value)
You can copy the entire table in excel and try it for yourself.
Year 0 1 2 3 4 5 Additional Annual Revenue $ 45,000 $ 45,000 $ 45,000 $ 45,000 $ 45,000 Less: Additional Annual Expense $ (15,000) $ (15,000) $ (15,000) $ (15,000) $ (15,000) Less: Depreciation $ (19,000) $ (19,000) $ (19,000) $ (19,000) $ (19,000) Additional Profit before Tax $ 11,000 $ 11,000 $ 11,000 $ 11,000 $ 11,000 Less: Tax @ 35% $ (3,850) $ (3,850) $ (3,850) $ (3,850) $ (3,850) Additional Profit after Tax $ 7,150 $ 7,150 $ 7,150 $ 7,150 $ 7,150 Add: Depreciation $ 19,000 $ 19,000 $ 19,000 $ 19,000 $ 19,000 Cash from operations $ 26,150 $ 26,150 $ 26,150 $ 26,150 $ 26,150 Initial Investment $ (100,000) After Tax Salvage Value $ 5,000 Additional Working Capital $ (8,000) $ 8,000 Project Cash Flows $ (108,000) $ 70,450 $ 70,450 $ 70,450 $ 70,450 $ 83,450 NPV using 11% Discounting Rate $160,091Related Questions
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