new ch10 final

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Principles of Corporate Finance, 8th Edition

Spreadsheet TemplatesMAIN MENU -- Chapter 10

Instructions Question 5

Help Topics

Copyright © 2005 McGraw-Hill/Irwin




Principles of Corporate Finance Main Menu

Eighth Edition

Instructions

Navigating the Workbook Top

CTRL+PAGE DOWN: Moves you to the next sheet in the workbook.

Entering your information Top

For each question, you will see the following lists and boxes:

Student Name:Course Name:Student ID:Course Number:

Enter your information in these cells before submitting your work.

Entering data Top

To enter numbers or text for these questions, click the cell you want, type the data andpress ENTER or TAB. Press ENTER to move down the column or TAB to move across the row.

For cells or columns where you want to enter text, select “Format,” and then “Cells” from

Excel’s main menu at the top of your screen. Select the “Number” tab and then “Text”

from the category list.

Printing Top

To print your work, select "File," and then "Print Preview" from Excel’s main menu at the top

of your screen. The print area for each question has been set, but be sure to reviewthe look of your print job. If you need to make any changes, select “Setup” when

you are previewing the document.

CTRL+PAGE UP: Moves you to the previous sheet in the workbook.

Navigating the Workbook

Entering your informationEntering dataPrinting

Another way to move quickly around an Excel workbook is by using the followingkeyboard shortcuts:

tab. In the spreadsheets to accompany Principles of Corporate Finance, you willsee a separate tab for each problem, along with the Main Menu, Instructions andHelp Topics worksheets.

move around the workbook quickly. The Main Menu contains links to each

Each chapter of the spreadsheets to accompany Principles of Corporate Financecontains links to help you navigate the workbook. These hyperlinks help you

problem from the chapter that contains the Excel icon. From the Main Menu,click on the question you wish to complete. You can always return to the mainmenu by clicking on the link located in the upper right corner of each worksheet.

You can move quickly around an Excel workbook by selecting the worksheet tab

at the bottom of the screen. Each worksheet in an Excel workbook will have its own




Principles of Corporate Finance Main Menu

Eighth Edition

Help Topics

THE PV FUNCTION

The present value formula, PV, "returns the present value of an investment," or "the totalamount a series of future payments is worth now." Examples include the present valueof a loan to the lender or the present value of Rs.100 received from an investment a number of years from now.

The syntax for this formula is:PV(rate,nper,pmt,fv,type)

The first three variables in this function are required. Rate is the interest rate per period.

Remember that rate must be for the actual period. For example, a 10 percent annualinterest rate is equivalent to 10%/12, or 0.0083 per month.

Nper is the total number of payment periods. For example, a four year monthly loan

would have 48 periods. Pmt is the constant amount received or paid each period.

In many cases, this function can also be completed by typing in the formula for the

present value of a cash flow. See the example below.

Interest Rate 7%Periods 3Cash Flow 100Present V alue =C27/(1+$C$25)^c26Present Value 81.63

THE SUM FUNCTION Top

The summation function adds all the numbers in a range of cells.To use this function, type "=SUM("and then select/highlight the range of numbers you wish to total.For example, to sum over all the present values in the table below, enter the SUM function as in cell C42.

0 1 2 3 4 5 6 7 8

Present Value -12600 1200 2000 3700 5100 4000 1900 900 1500

Net Present Value =SUM(c40:k40)Net Present Value 7700

THE NPV FUNCTION

Use Excel's net present value function (NPV) to calculate the present value for a series of Topcash flows at a given interest rate.

The standard syntax for this formula is:NPV(rate,RANGE) where Rate is the interest rate per period (monthly, annual, etc.) and

RANGE is the range of cells containing the cash flows.

The NPV function assumes that the cash flows are starting in period 1.For example, to find the net present value for the cash flows in the table below, enter the NPV function

Period




and subtract the initial investment for period 0.

0 1 2 3 4 5 6 7 8

Cash Flows -1000 200 200 340 400 350 900 900 1000Rate 10%Net Present Value =NPV(C61,D60:K60)+C60

Net Present Value $1,529.46

Period

C i ht © 2005 M G Hill/I i



Chapter 10

Question # 5 Evaluating the purchase of a new machine

Student Name:Course Name:Student ID:

Course Number:

Assumptions

New Equipment Costs Rs.9,000,000.00Discount Rate 12.00%

Pessimistic Expected OptimisiticSales 400,000 500,000 700,000 Manufacturing cost with new

machinery, dollars per welt Rs.6.00 Rs.4.00 Rs.3.00Economic life of new

machinery, years 7 10 13

Use the PV function to find the annuity factor under each case

Pessimistic Expected Optimisitic Annutiy Factor FUNCTION FUNCTION FUNCTION

Calculate the equivalent annual cost savings under each case

Pessimistic Expected OptimisiticSales FORMULA FORMULA FORMULAManufacturing cost FORMULA FORMULA FORMULAEconomic life FORMULA FORMULA FORMULA

Given the Equivalent Annual Cost, would you advise the the company to go ahead with the study?

Click here for help understanding the PV function.


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