Directions for Discussion Questions:
(10.2) I would recommend using the NPV function in Excel or a financial calculator. Note that the NPV function in Excel takes the PV of cash flows from an investment. You must subtract the cost of the investment to arrive at the NPV. For 10.2, you will have:
= NPV(15%,814332,863275,937250,1017112,1212960,1225000) – 4133250.
You can simplify this considerably by entering the cash flows and referring to the relevant cells.
(10.7) Use the expression for Payback period.
(10.28) Use NPV formula discussed in 10.2 above. Which project should be accepted? Explain.
(10.32) In addition to calculating the NPV for the two projects, you may wish to use the IRR function in Excel or a financial calculator. You will compare the IRR for each project to the required rate of return (cost of capital). Note that the IRR function in Excel takes into account the cost of the investment (first argument; negative cash flow). Which project should be accepted? Please state this in your answer, with a short explanation.