Principles of Corporate Finance, 8th Edition Spreadsheet Templates MAIN MENU -- Chapter 10 Instructions Help Topics Question 5

Copyright 2005 McGraw-Hill/Irwin

Copyright 2005 McGraw-Hill/Irwin

Principles of Corporate Finance

Eighth Edition Instructions
Navigating the Workbook Entering your information Entering data Printing Navigating the Workbook Each chapter of the spreadsheets to accompany Principles of Corporate Finance contains links to help you navigate the workbook. These hyperlinks help you move around the workbook quickly. The Main Menu contains links to each 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 main menu 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 tab. In the spreadsheets to accompany Principles of Corporate Finance, you will see a separate tab for each problem, along with the Main Menu, Instructions and Help Topics worksheets. Another way to move quickly around an Excel workbook is by using the following keyboard shortcuts: CTRL+PAGE DOWN: Moves you to the next sheet in the workbook. CTRL+PAGE UP: Moves you to the previous sheet in the workbook.

Main Menu

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Entering your information For each question, you will see the following lists and boxes:
Student Name: Course Name: Student ID: Course Number:

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Enter your information in these cells before submitting your work. Entering data To enter numbers or text for these questions, click the cell you want, type the data and press 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 Excels main menu at the top of your screen. Select the Number tab and then Text from the category list. Printing To print your work, select "File," and then "Print Preview" from Excels main menu at the top of your screen. The print area for each question has been set, but be sure to review the look of your print job. If you need to make any changes, select Setup when you are previewing the document. Top Top

Copyright 2005 McGraw-Hill/Irwin

Copyright 2005 McGraw-Hill/Irwin

Principles of Corporate Finance

Eighth Edition

Main Menu

Help Topics
THE PV FUNCTION The present value formula, PV, "returns the present value of an investment," or "the total amount a series of future payments is worth now." Examples include the present value of 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 annual interest 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 Periods Cash Flow Present Value Present Value 7% 3 100 =C27/(1+$C$25)^c26 81.63

THE SUM FUNCTION 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. Period 3 4 3700 5100

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Present Value Net Present Value Net Present Value

0 -12600 =SUM(c40:k40) 7700

1 1200

2 2000

5 4000

6 1900

7 900

8 1500

THE NPV FUNCTION Use Excel's net present value function (NPV) to calculate the present value for a series of cash 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

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Copyright 2005 McGraw-Hill/Irwin

and subtract the initial investment for period 0. Period 4 340 400

Cash Flows Rate Net Present Value Net Present Value

0 1 -1000 200 10% =NPV(C61,D60:K60)+C60 $1,529.46

2 200

5 350

6 900

7 900

8 1000

Copyright 2005 McGraw-Hill/Irwin

Chapter 10 Question # 5 Evaluating the purchase of a new machine Student Name: Course Name: Student ID: Course Number: Assumptions New Equipment Costs Discount Rate

Rs.9,000,000.00 12.00%

Sales Manufacturing cost with new machinery, dollars per welt Economic life of new machinery, years

Pessimistic 400,000 Rs.6.00 7

Expected 500,000 Rs.4.00 10

Optimisitic 700,000 Rs.3.00 13

Use the PV function to find the annuity factor under each case Pessimistic FUNCTION Expected FUNCTION Optimisitic FUNCTION

Annutiy Factor

Click here for help understanding the PV function.

Calculate the equivalent annual cost savings under each case Pessimistic FORMULA FORMULA FORMULA Expected FORMULA FORMULA FORMULA Optimisitic FORMULA FORMULA FORMULA

Sales Manufacturing cost Economic life

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

Copyright 2005 McGraw-Hill/Irwin