Question

Investment Opportunity: Purchase Price: Useful Life: Cost of Capital: Zimboozy $17,500 5 years 8.00% YEAR Cash in PV $ Data: 5,000 8,000 13,000 7,000 8,000 Cash out $17,500 2,500 4,000 5,200 4,800 3,000 Net Flow (17,500) 2,500 4,000 7,800 2,200 5,000 4,000 Summary of annual cash flows YEAR Cash in NPV $ Cash out $17,500 2,500 4,000 5,200 4,800 3,000 5,000 8,000 13,000 7,000 8,000 Net Flow (17,500) 2,500 4,000 7,800 2,200 5,000 4,000 IRR approach to capital budgeting Input the assumed cost of capital YEAR PV Instructions: Analyze this investment opportunity and make a recommendation using the following 2 methods: CASH IN CASH OUT NET FLOW 17,500 (17,500) 5,000 2,500 2,500 8,000 4,000 4,000 13,000 5,200 7,800 7,000 4,800 2,200 8,000 3,000 5,000 4,000 * NPV * IRR NPV (must be 0)

Answer 1

Year	Net Flow	PV
0	-17500	-17500.00
1	2500	2314.81
2	4000	3429.36
3	7800	6191.89
4	2200	1617.07
5	5000	3402.92
NPV	-543.96	-543.96

Assumed cost of capital	6.88%
Year	Net Flow	PV
0	-17500	-17500
1	2500	2339.06
2	4000	3501.58
3	7800	6388.53
4	2200	1685.90
5	5000	3584.93
	NPV	0.00

Workings

Book1 - Excel Sign in - AutoSave @ 07 File Home . Draw D . Page Layout - Share 3 X Comments Insert Formulas Data Review View Help Tell me what you want to do E = = = Calibri BIU - 2 - 11 0 A A -A Insert Ex Delete Format - General $ -% Paste 16 - -23 Conditional Format as Formatting Table Styles Cell Styles Sort & Find & Filter - Select Clipboard Font Alignment Number 5 Cells Editing . fx Net Flow B C H I A 1 Year Net Flow 20 -17500 3 1 2500 4 2 4000 5 3 7800 64 2200 7 5 5000 =B2/1.08AA2 =B3/1.08 A3 =B4/1.08 A4 =B5/1.08 A5 =B6/1.084A6 =B7/1.08^A7 F G Assumed cost of capital =IRR(B2:37) Year Net Flow PV -17500 =F3/(1+$F$1)^E3 2500 =F4/(1+$F$1)^E4 4000 =F5/(1+$F$1)^E5 7800 =F6/(1+$F$1)^E6 2200 =F7/(1+$F$1)^E7 5000 =F8/(1+$F$1)^E8 NPV =SUM(G3:58) 9 NPV =NPV(8%,B3:37)+B2 =SUM(C2:07) 17 Sheet1 Sheet2 Ready = J -— + 1009