Using Excel for capital budgeting calculationsDownload an Excel template for this problem online in MyAccountingLab or at http://www.pearsonhighered.com/Horngren.Glacier Creek Textiles is planning to purchase new manufacturing equipment. The equipment has an acquisition cost of $100,000, an estimated useful life of five years and no residual value. The company uses a 12% rate of return to evaluate capital projects. The cash flows for the five years are:RequirementsCompute the accounting rate of return.Compute the net present value of the investment using Excel’s PV function.Compute the net present value of the investment using Excel’s NPV function.Compute the profitability index, rounded to two decimal places.Compute the internal rate of return of the investment using Excel’s IRR function. Display to two decimal places, but do not round. YearNet Cash OutflowsNet Cash Inflows$(100,000)125,00029,00026,000428,00035,000

1) Calculating the accounting rate of return: Annual depreciation: Asset value/ useful life years.…

Answered: Year Net Cash Outflows Net Cash Inflows…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Using Excel for capital budgeting calculations

Download an Excel template for this problem online in MyAccountingLab or at http://www.pearsonhighered.com/Horngren.

Glacier Creek Textiles is planning to purchase new manufacturing equipment. The equipment has an acquisition cost of $100,000, an estimated useful life of five years and no residual value. The company uses a 12% rate of return to evaluate capital projects. The cash flows for the five years are:

Requirements

Compute the accounting rate of return.
Compute the net present value of the investment using Excel’s PV function.
Compute the net present value of the investment using Excel’s NPV function.
Compute the profitability index, rounded to two decimal places.
Compute the internal rate of return of the investment using Excel’s IRR function. Display to two decimal places, but do not round.

Year
Net Cash Outflows
Net Cash Inflows
$(100,000)
1
25,000
29,000
26,000
4
28,000
35,000

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