22 Feb Air Scrubbers? Furnace Fuel Change Initial Investment ??$ ?????1,350,000 ???$ ???????1,385,000 ?? Annual Net Cash Flows ??$ ????????225,000 ???$ ??????????315,000 ?? Annual Net Income ?
Air Scrubbers
Furnace Fuel Change
Initial Investment $ 1,350,000 $ 1,385,000
Annual Net Cash Flows $ 225,000 $ 315,000
Annual Net Income $ 135,000 $ 150,000
Project Life 15 years 15 years
Average Book Value $ 675,000 $ 692,500
Cost of Capital 6% 6%
Part 1 – Capital Budget
| Instructions: Your Instructor will provide the numerical data of the required investment, annual cash flows, annual net income, average book value, and cost of capital to students. Use that information to calculate the NPV, payback, IRR, and ARR by filling in the highlighted cells. Additionally, use the IRR Worksheet to calculate the IRR using the Excel =IRR formula. | ||||||||||||
| Air Scrubbers | ||||||||||||
| IRR Worksheet | ||||||||||||
| Air Scrubbers | Furnace Fuel Change | Period | Cash Flow | |||||||||
| 0 | -1350000 | |||||||||||
| Net Present Value using the Annuity Table to determine PV of cash flow | Net Present Value using the Annuity Table to determine PV of cash flow | 1 | 225,000 | |||||||||
| NPV = Initial Cost + (Net Annual Cash Flow × Factor) | Amount | Factor | Present Value | NPV = Initial Cost + (Net Annual Cash Flow × Factor) | Amount | Factor | Present Value | 2 | 225,000 | |||
| Initial investment | $ (1,350,000) | 1 | $ (1,350,000) | Initial investment | $ (1,385,000) | 1 | $ (1,385,000) | 3 | 225,000 | |||
| PV of Annual net cash flow for 15 years | 225,000 | -1350000.00 | (843,744) | PV of Annual net cash flow for 15 years | $ 315,000 | 1.00 | 152,369 | 4 | 225,000 | |||
| Net present value | $ (2,193,744) | Net present value | $ 1,232,631 | 5 | 225,000 | |||||||
| OR | OR | 6 | 225,000 | |||||||||
| Net Present Value Using Excel to determine PV cash flow | Net Present Value Using Excel to determine PV cash flow | 7 | 225,000 | |||||||||
| NPV = Initial Cost + PV of Cash Flow | Present Value | NPV = Initial Cost + PV of Cash Flow | Present Value | 8 | 225,000 | |||||||
| Initial investment | $ (1,350,000) | Initial investment | $ (1,385,000) | 9 | 225,000 | |||||||
| PV of Annual net cash flow for 15 years | =PV(rate,value1,[value2]) | 375 | PV of Annual net cash flow for 15 years | =PV(rate,value1,[value2]) | (3,059) | 10 | 225,000 | |||||
| Net present value | $ (1,349,625) | Net present value | 11 | 225,000 | ||||||||
| $ (1,388,059) | 12 | 225,000 | ||||||||||
| Payback Period = Initial Investment / Net Annual Cash Flow | Payback Period = Initial Investment / Net Annual Cash Flow | 13 | 225,000 | |||||||||
| 14 | 225,000 | |||||||||||
| -3603.1252129469 | 452.7092954861 | 15 | 225,000 | |||||||||
| 14.01% | ||||||||||||
| Internal Rate of Return | Internal Rate of Return | |||||||||||
| Using Annuity Table | 9.71% | Using Annuity Table | 9.71% | Furnance Fuel Change | ||||||||
| OR | OR | IRR Worksheet | ||||||||||
| Using Excel =IRR(M6:M21) use the IRR worksheet | 14.10% | Using Excel =IRR(M26:M41) use the IRR worksheet | 21.52% | Period | Cash Flow | |||||||
| 0 | -1385000 | |||||||||||
| Average Rate of Return = Ave Net Income / Ave Book Value of investment | Average Rate of Return = Ave Net Income / Ave Book Value of investment | 1 | 315,000 | |||||||||
| 2 | 315,000 | |||||||||||
| 0.2 | 0.216 | 3 | 315,000 | |||||||||
| 4 | 315,000 | |||||||||||
| 5 | 315,000 | |||||||||||
| 6 | 315,000 | |||||||||||
| 7 | 315,000 | |||||||||||
| 8 | 315,000 | |||||||||||
| 9 | 315,000 | |||||||||||
| 10 | 315,000 | |||||||||||
| 11 | 315,000 | |||||||||||
| 12 | 315,000 | |||||||||||
| 13 | 315,000 | |||||||||||
| 14 | 315,000 | |||||||||||
| 15 | 315,000 | |||||||||||
| 21.52% | ||||||||||||
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© 2022 Walden University, LLC Page 1 of 1
Week 6 Assignment Data
Air Scrubbers Furnace Fuel Change
Initial Investment $ 1,350,000 $ 1,385,000
Annual Net Cash Flows $ 225,000 $ 315,000
Annual Net Income $ 135,000 $ 150,000
Project Life 15 years 15 years
Average Book Value $ 675,000 $ 692,500
Cost of Capital 6% 6%
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