Concept explainers
Using Excel for capital budgeting calculations
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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%
Year | Net |
Net |
0 | $(100,000) | |
1 | 25,000 | |
2 | 29,000 | |
3 | 26,000 | |
4 | 28,000 | |
5 | 35,000 |
Requirements
1. Compute the accounting rate of return.
2. Compute the
3. Compute the net present value of the investment using Excel's NPV function.
4. Compute the profitability index, rounded to two decimal places.
5. Compute the internal rate of
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