Problem 8-23 Name:
Enter the appropriate numbers/formulas in the shaded (gray) cells, or select from the drop-down list.
An asterisk (*) will appear in the column to the right of an incorrect answer.
A.
/
Initial
Investment
Instructor
Annual
Savings/
Benefits
Payback
Period
=
unacceptable.
Initial investment New (4,000,000)$ 1.0000 (4,000,000)$
Defective parts savings 1-10 100,000 5.6502 565,020
Revenue increase 1-10 150,000 5.6502 847,530
Operating cost savings 1-10 300,000 5.6502 1,695,060
Net present value (892,390)$
Initial investment (4,000,000)$
Annual Savings/Benefits: Year 1 550,000
Year 2 550,000
Year 3 550,000
Year 4 550,000
Year 5 550,000
Year 6 550,000
Year 7 550,000
Year 8 550,000
Year 9 550,000
Year 10 550,000 (892,377)$
Using Excel’s IRR function: 6.25%
Under either criterion, the project is
unacceptable.
C.
Initial investment New (4,000,000)$
1.0000 (4,000,000)$
Defective parts savings 1-10 100,000
5.6502 565,020
Revenue increase 1-10 150,000
5.6502 847,530
Operating cost savings 1-10 300,000
5.6502 1,695,060
Salvage value 10 500,000
0.3220 161,000
Year 2 730,000
Year 3 730,000
Year 4 730,000
Year 5 730,000
Year 6 730,000
Year 7 730,000
Year 8 730,000
Year 9 730,000
Year 10 1,230,000 285,649$
Using Excel’s IRR function: 13.65%