# Part 1 – Capital Budget

 Instructions:Your Instructor will provide the numerical data of the required investment, annual cash flows, annual net income, average book value, and cost of capital to students. Use that information to calculate the NPV, payback, IRR, and ARR by filling in the highlighted cells. Additionally, use the IRR Worksheet to calculate the IRR using the Excel =IRR formula. Air Scrubbers IRR Worksheet Air Scrubbers Furnace Fuel Change Period Cash Flow 0 -1350000 Net Present Value using the Annuity Table to determine PV of cash flow Net Present Value using the Annuity Table to determine PV of cash flow 1 225,000 NPV = Initial Cost + (Net Annual Cash Flow × Factor) Amount Factor Present Value NPV = Initial Cost + (Net Annual Cash Flow × Factor) Amount Factor Present Value 2 225,000 Initial investment \$ (1,350,000) 1 \$ (1,350,000) Initial investment \$ (1,385,000) 1 \$ (1,385,000) 3 225,000 PV of Annual net cash flow for 15 years 225,000 -1350000.00 (843,744) PV of Annual net cash flow for 15 years \$ 315,000 1.00 152,369 4 225,000 Net present value \$ (2,193,744) Net present value \$ 1,232,631 5 225,000 OR OR 6 225,000 Net Present Value Using Excel to determine PV cash flow Net Present Value Using Excel to determine PV cash flow 7 225,000 NPV = Initial Cost + PV of Cash Flow Present Value NPV = Initial Cost + PV of Cash Flow Present Value 8 225,000 Initial investment \$ (1,350,000) Initial investment \$ (1,385,000) 9 225,000 PV of Annual net cash flow for 15 years =PV(rate,value1,[value2]) 375 PV of Annual net cash flow for 15 years =PV(rate,value1,[value2]) (3,059) 10 225,000 Net present value \$ (1,349,625) Net present value 11 225,000 \$ (1,388,059) 12 225,000 Payback Period = Initial Investment / Net Annual Cash Flow Payback Period = Initial Investment / Net Annual Cash Flow 13 225,000 14 225,000 -3603.1252129469 452.7092954861 15 225,000 14.01% Internal Rate of Return Internal Rate of Return Using Annuity Table 9.71% Using Annuity Table 9.71% Furnance Fuel Change OR OR IRR Worksheet Using Excel =IRR(M6:M21) use the IRR worksheet 14.10% Using Excel =IRR(M26:M41) use the IRR worksheet 21.52% Period Cash Flow 0 -1385000 Average Rate of Return = Ave Net Income / Ave Book Value of investment Average Rate of Return = Ave Net Income / Ave Book Value of investment 1 315,000 2 315,000 0.2 0.216 3 315,000 4 315,000 5 315,000 6 315,000 7 315,000 8 315,000 9 315,000 10 315,000 11 315,000 12 315,000 13 315,000 14 315,000 15 315,000 21.52% 