Can anyone help me answer this and include the formulas in excel? im not sure wh

Question

Can anyone help me answer this and include the formulas in excel? im not sure which formulas I am supposed to use For the following projects Machine A, Machine B, or Machine C. The Firm’s cost of capital is 12%. Cash flows are as follows: Investment Year A B C 0 -50000 -60000 -70000 1 15000 12000 50000 2 15000 18000 30000 3 15000 36000 20000 4 15000 48000 10000 5 15000 5000 (a) Calcuate Net Present Value of each project. (b) Using NPV, evaluate the acceptability of each project. (c) Rank projects from best to worst using NPV. If projects were not mutually exclusive, what would you do? If they were mutually exclusive, what would you do? (d) Rank projects from best to worst using PI. (e) What is the payback period for each project, and what is the order of best to worst?

Explanation / Answer

Machine A 12% (cash inflow*discounting) year cash inflow/(outflow) discounting present value 0 -50000 1 -50000 1 15000 0.892 13380 2 15000 0.797 11955 3 15000 0.711 10665 4 15000 0.635 9525 5 15000 0.567 8505 54030 NPV= cash inflow-cash outflow NPV 54030-50000 4030 Machine B year cash inflow/(outflow) discounting present value 0 -60000 1 -60000 1 12000 0.892 10704 2 18000 0.797 14346 3 36000 0.711 25596 4 48000 0.635 30480 5 5000 0.567 2835 83961 NPV= cash inflow-cash outflow ,=83961-60000 NPV 23961 Machine c year cash inflow/(outflow) discounting present value 0 -70000 1 -70000 1 50000 0.892 44600 2 30000 0.797 23910 3 20000 0.711 14220 4 10000 0.635 6350 89080 NPV= cash inflow-cash outflow 89080-70000 NPV 19080 b. on the basis of NPV machine B is giving higher NPV as compare to others. c. Best NPV 23961 Worst NPV 4030 A mutually-exclusive project is one where acceptance of such a project will have an effect on the acceptance of another project. In mutually exclusive projects, the cash flows of one project can have an impact on the cash flows of another. Most business investment decisions fall into this category. Profitability Index = Present Value of Future Cash Flows Initial Investment Required d. Machine A 54030/50000 1.08 Machine B 83961/60000 1.4 Machine C 89080/70000 1.27 on the basis of profitability index machine C is giving higher. So machine C should be selected on Profitable index basis. Payback period in capital budgeting refers to the period of time required for the return on an investment to “repay” the sum of the original investment.

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