Excel #6
Capital Budgeting
Spring 2009
You are the CFO of a business and have the opportunity to evaluate two different
investment opportunities. Information related to these investments follows:
Investment 1 Investment 2
Investment Cost $ 900,000 $ 900,000
Salvage Value $ 200,000 $ 100,000
Useful Life 7 years 20 years
Annual Depreciation $ 100,000 $ 40,000
Investment 1 Investment 2
Pre-Tax CASH FLOW $ 200,000 $ 170,000
Your company has a required rate of return of 15% for all new investments and is subject
to a tax rate of 20%.
1) Determine the after tax cash flow for each investment.
2) Calculate the Net Present Value for each investment
3) IGNORING THE SALVAGE VALUE, (use only the annuity to determine the
IRR), calculate the Internal Rate of Return for each investment
4) Calculate the Payback Period for each investment
5) Recalculate the Net Present Value for INVESTMENT #1 ONLY and assume that
the reqired/target rate of return is 6%, 8%, and 20%.
Save File as:
LAST NAME FIRST NAME CLASS TIME EXCEL 6
Rules regarding the completion of the Excel Assignments:
1) You MUST use the Excel Templates provided on the ACCT 102 website for this
quarter.
2) You MUST sign the academic honesty pledge or you will automatically receive a
zero, NO EXCEPTIONS!
3) You MUST use formulas and links whenever possible. If you simply type in your
solutions rather than use formulas, you will receive a zero.
4) You MUST name your Excel files per the instruction sheet (Last Name First
Name Excel #). Failure to name your Excel file will result in a zero, NO
EXCEPTIONS.
5) Your Instructor will inform you how to electronically send your assignments.
Failure to follow YOUR INSTRUCTOR’S INSTRUCTIONS will result in a zero
grade for the assignment (note that each instructor may have his/her own required
method of turning in the assignment).
© Copyright of Michael J. Meyer 2009. Use by permission only.
