Chapter 15 Capital Budgeting - Solution Manual Content

Chapter 15: Applying Excel

The completed worksheet is shown below.

Note: Your worksheet may differ from the above in rows 28 and 29.

The worksheet above has been set to use the exact discount factors
without rounding, for example in Cell G27, it has the figure of
0.519368664… If the factor is rounded to 0.519, the present value of the
$150,000 in year 5 would be $77,850 instead of $77,905 as per Cell G28.

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 Chapter 15 Capital Budgeting - Solution Manual Content

Overall, if the exact discount factors are used, the net present value is
$31,493 as per the above table, if the discount factors are rounded to
three decimal places, the net present value would be $31,410 instead.
Either answer is okay.

Exact discount factors are used in the next few worksheets.

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Chapter 15: Applying Excel (continued)

The completed worksheet, with formulas displayed, is shown below.

[Note: To display formulas in Excel, select “formulas” => select “Show

formulas” in cells instead of their calculated amounts. To display the
formulas in other versions of Excel, consult Excel Help.]

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Chapter 15: Applying Excel (continued)

1. With the change in the discount rate, the result is:

The net present value increases because the positive cash inflows occur
in the future. When the discount rate decreases, the future cash flows
have a larger present value.

(NPV = $56,495 for using 3 decimal places rounded discounted rates)

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Chapter 15: Applying Excel (continued)

2. For the new project, the worksheet should look like this:

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Chapter 15: Applying Excel (continued)

a. The net present value of the project is $(17,258).
(NPV = $(17,340) for 3 decimal places rounded discounted rates)

b. Increasing the discount rate results in making the negative net

present value even more negative. Decreasing the discount rate
improves the net present value. It turns positive when decreasing the
discount rate from 11% to 10% as shown below.

(NPV = $5,330 for using 3 decimal places rounded discounted rates)

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Chapter 15: Applying Excel (continued)

c. The internal rate of return is the discount rate at which the net
present value is zero. This occurs somewhere between the discount
rates 10% and 11%. The net present value at 10% is $5,357 as
shown above. The net present value at 11% is $(689) as shown
below. Therefore, the internal rate of return is between 10% and
11%.

(NPV = $(740) for 3 decimal places rounded discounted rates)

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Chapter 15: Applying Excel (continued)

d. The amount of future uncertain salvage value that would be required
to make the net present value positive, which is $53,229 ($33,229 +
$20,000), can be found by experimenting with the salvage value in
the worksheet. It can also be computed using the formula from the
text as follows:
Additional salvage value required
¿ Negative net present value ¿ be offset ¿
Present value factor

$ (17,258)
¿
1
¿¿ ¿

=$33,229

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10 Managerial Accounting, Asia Global Edition 2e