The Excel worksheet form that appears below is to be used to recreate Example C and Exhibit 13–4 on pages 586–587. Download the workbook containing this form from the Online Learning Center at www.mhhe.com/garrison14e. On the website you will also receive instructions about how to use this worksheet form.
You should proceed to the requirements below only after completing your worksheet.
1. Check your worksheet by changing the discount rate to 10%. The net present value should now be between $56,518 and $56,535—depending on the precision of the calculations. If you do not get an answer in this range, find the errors in your worksheet and correct them.
Explain why the net present value has fallen as a result of reducing the discount rate from 14% to 10%.
2. The company is considering another project involving the purchase of new equipment. Change the data area of your worksheet to match the following:
a. What is the net present value of the project?
b. Experiment with changing the discount rate in one percent increments (e.g., 13%, 12%, 15%, etc.). At what interest rate does the net present value turn from negative to positive?
c. The internal rate of return is between what two whole discount rates (e.g., between 10% and 11%, between 11% and 12%, between 12% and 13%, between 13% and 14%, etc.)?
d. Reset the discount rate to 14%. Suppose the salvage value is uncertain. How large would the salvage value have to be to result in a positive net present value?
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