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  • 2020-10-31 - Prob7-23 - Capital Budget Decision

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    Alenne Felizardo
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    The document discusses using the what-if analysis (goal seek) function to calculate internal rate of return (IRR). It provides an example of setting the net present value (NPV) equal to 0 and allowing the goal seek function to find the discounted rate. The example lists cash flows over 5 years, with an initial investment of $170,000 and annual cash inflows of $60,000. It shows the calculations to find the IRR of approximately 15.3%.

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    The document discusses using the what-if analysis (goal seek) function to calculate internal rate of return (IRR). It provides an example of setting the net present value (NPV) equal to 0 and allowing the goal seek function to find the discounted rate. The example lists cash flows over 5 years, with an initial investment of $170,000 and annual cash inflows of $60,000. It shows the calculations to find the IRR of approximately 15.3%.

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    © All Rights Reserved
    Download as XLSX, PDF, TXT or read online from Scribd
    Flag for inappropriate content
    Download as xlsx, pdf, or txt
    6 views31 pages

    2020-10-31 - Prob7-23 - Capital Budget Decision

    Uploaded by

    Alenne Felizardo
    The document discusses using the what-if analysis (goal seek) function to calculate internal rate of return (IRR). It provides an example of setting the net present value (NPV) equal to 0 and allowing the goal seek function to find the discounted rate. The example lists cash flows over 5 years, with an initial investment of $170,000 and annual cash inflows of $60,000. It shows the calculations to find the IRR of approximately 15.3%.

    Copyright:

    © All Rights Reserved
    Download as XLSX, PDF, TXT or read online from Scribd
    Flag for inappropriate content
    Download as xlsx, pdf, or txt
    of 31

    Note: For IRR you have to use What If Analysis (Goal Seek): Set NPV = 0, Input amount of Yea

    Discount Rate (r) 16.0%


    Time (t) 5
    Growth Rate (g) 10%

    Name Year
    0
    Annuity - Stream of Constant Cash Flow 1-5
    Perpetuity of a Constant Cash Flow Inf
    PV of a Growing Annuity ++
    PV of an Annuity Due ->|
    1
    2
    3
    4
    5
    6
    7
    8
    9
    10
    11
    12
    13
    14
    15
    16
    17
    18
    19
    20
    21
    t If Analysis (Goal Seek): Set NPV = 0, Input amount of Years or other information and leave Goal Seek to find the Discounted R

    Innitial Investment $ 170,000.00 PPI


    Annual Cash Inflows $ 60,000.00 Depreciation Charges
    Payback Period (periods) 2.83 SRR
    (1) (2) (1) + (2) = (3)
    (Outflows) Inflows Total Cash Flow
    $ (170,000.00) $ (170,000.00)
    $ (190,000.00) $ 250,000.00 $ 60,000.00
    $ -
    $ -
    $ -
    $ -
    $ -
    $ -
    $ -
    $ -
    $ -
    $ -
    $ -
    $ -
    $ -
    $ -
    $ -
    $ -
    $ -
    $ -
    $ -
    $ -
    $ -
    $ -
    $ -
    $ -
    Seek to find the Discounted Rate (r).

    $ 0.16
    $ 34,000.00
    15.3%

    (4) (3) x (4)


    Discount Factor PV of the Cash Flow
    1.000 $ (170,000.00)
    3.274 $ 196,440.00
    6.250 $ -
    3.89 $ -
    3.798 $ -
    0.862 $ -
    0.743 $ -
    0.641 $ -
    0.552 $ -
    0.476 $ -
    - $ -
    - $ -
    - $ -
    - $ -
    - $ -
    - $ -
    - $ -
    - $ -
    - $ -
    - $ -
    - $ -
    - $ -
    - $ -
    - $ -
    - $ -
    - $ -
    NPV $ 26,440
    Note: For IRR you have to use What If Analysis (Goal Seek): Set NPV = 0, Input amount of Years or

    Round Discount Facotrs?


    Discount Rate (r) 16% Innitial Investment
    Time (t) 5 Annual Cash Inflows
    Growth Rate (g) 10% Payback Period (periods)
    Discount Factor (# Digits) 3
    (1)
    Name Year (Outflows)
    0 $ (380,000.00)
    Annuity - Stream of Constant Cash Flow 1-5 $ (220,000.00)
    Perpetuity of a Constant Cash Flow Inf
    PV of a Growing Annuity ++
    PV of an Annuity Due ->|
    1
    2
    3
    4
    5
    6
    7
    8
    9
    10
    11
    12
    13
    14
    15
    16
    17
    18
    19
    20
    21
    0, Input amount of Years or other information and leave Goal Seek to find the Discounted Rate (r).

    $ 380,000.00 PPI $ 0.12


    $ 130,000.00 Depreciation Charges $ 76,000.00
    2.92 SRR 14.2%

    (2) (1) + (2) = (3) (4)


    Inflows Total Cash Flow Discount Factor
    $ (380,000.00) 1.000
    $ 350,000.00 $ 130,000.00 3.274
    $ - 6.250
    $ - 3.89
    $ - 3.798
    $ - 0.862
    $ - 0.743
    $ - 0.641
    $ - 0.552
    $ - 0.476
    $ - -
    $ - -
    $ - -
    $ - -
    $ - -
    $ - -
    $ - -
    $ - -
    $ - -
    $ - -
    $ - -
    $ - -
    $ - -
    $ - -
    $ - -
    $ - -
    Annual Cash Inflows $ (250,000.00) NPV
    Discounted Rate (r).

    (3) x (4)
    PV of the Cash Flow
    $ (380,000.00)
    $ 425,620.00
    $ -
    $ -
    $ -
    $ -
    $ -
    $ -
    $ -
    $ -
    $ -
    $ -
    $ -
    $ -
    $ -
    $ -
    $ -
    $ -
    $ -
    $ -
    $ -
    $ -
    $ -
    $ -
    $ -
    $ -
    $ 45,620

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