Chapter 09 – Financial Analytics

Lab 9.5 Excel Solution

Lab 9.5 Excel Screenshot Submission 1:

Net Cash Flows Over Life (not discounted) 90,000

Present Value of Expected Future Cash Flows $93,790.79 $86,308.06 $88,481.29

$93,114.29
Initial Outlay (50,000) (50,000) (50,000) (50,000)
Net Present Value (NPV) of Investment $43,790.79 $36,308.06 $38.481.29
$43,114.29

Questions 1-5 Answer

According to the NPV analysis, which investment is least profitable Investment
Assessment 1 over the life of the investment? 2($36,308.06)
What would be the NPV for a company that makes a $25,000
investment in year 0, and then receives $6,000 per year each
of the next five years, with a cost of capital of 6% (and round Approximatel
Assessment 2 to two digits (cents)? y $3,170.87
What would be the NPV for a company that makes a $25,000
investment in year 0, and then receives $5,000 per year each
of the next five years, with a cost of capital of 6% (and round Approximatel
Assessment 3 to two digits (cents)? y $718.93
What would be the NPV for a company that makes a $25,000
investment in year 0, and then receives $6,000 per year each
of the next five years, with a cost of capital of 5% (and round Approximatel
Assessment 4 to two digits (cents)? y $3,711.50
What would be the NPV for a company that makes a $25,000
investment in year 0, and then receives $5,000 per year each
of the next five years, with a cost of capital of 5% (and round Approximatel
Assessment 5 to two digits (cents)? y $1,311.39

Lab 9.5 Excel Analysis Questions

1. The analysis seems to show, the sooner the cash inflows arrive (as shown with Investment 1),
the greater the net present value. Why is that?
Cash inflows are less affected by discounting the earlier they arrive due to the time value of
money. Since money's present value decreases with time, receiving cash sooner has a larger net
present value (NPV).

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Chapter 09 – Financial Analytics

2. If the net present value is negative, should the investor proceed with the investment? Why?
If the investment's net present value is negative, the investor shouldn't proceed with it. When
an investment's returns are less than it’s cost of capital, as indicated by a negative net present
(NPV), the investment loses value.

Alternate Lab 9.5 Excel Solution

Alternate Lab 9.5 Excel Submission Screenshot 1:

Net Cash Flow over Life (not discounted) 80,000 85,000 80,000 80,000

Present Vlaue of Expected Future Cash Flows $1,51,631.47 $1,27,288.87 $1,44,433.75

$1,58,829.19
Initial Outlay (1,20,000) (1,20,000) (1,20,000) (1,20,000)
Net Present Value (NPV) of Investment $31,631.47 $7,288.87 $24,433.75
$38,829.19

Alternate Lab 9.5 Excel Assessment

Questions 1-15 Answer

According to the NPV analysis, which investment is most Investment 4
Assessment 1 profitable over the life of the investment? ($38,829.19)
According to the NPV analysis, which investment is least Investment
Assessment 2 profitable over the life of the investment? 2($7,288.87)
What is the amount of net cash flows (not discounted) over the
Assessment 3 life of the investment 1? $80,000
What would be the NPV for a company that has a 6% cost of
capital, makes a $100,000 investment in year 0, and then receives Approximately
Assessment 4 $21,000 per year each of the next eight years? $21,040.58
What would be the NPV for a company that has a 7% cost of
capital, makes a $100,000 investment in year 0, and then receives Approximately
Assessment 5 $21,000 per year each of the next eight years? $15,881.26
What would be the NPV for a company that has a 8% cost of
capital, makes a $100,000 investment in year 0, and then receives Approximately
Assessment 6 $21,000 per year each of the next eight years? $10,967.70
What would be the NPV for a company that has a 9% cost of
capital, makes a $100,000 investment in year 0, and then receives Approximately
Assessment 7 $21,000 per year each of the next eight years? $6,282.53
What would be the NPV for a company that has a 10% cost of
capital, makes a $100,000 investment in year 0, and then receives Approximately
Assessment 8 $21,000 per year each of the next eight years? $1,809.89
Assessment 9 What are the net cash flows (not discounted) for a company that $168,000

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Chapter 09 – Financial Analytics

makes a $100,000 investment in year 0, and then receives

$21,000 per year each of the next eight years?
What are the net cash flows (not discounted) for a company that
makes a $100,000 investment in year 0, and then receives
Assessment 10 $25,000 per year each of the next eight years? $200,000
What would be the NPV for a company that has a 6% cost of
capital, makes a $110,000 investment in year 0, and then receives Approximately
Assessment 11 $25,000 per year each of the next eight years? $33,819.48
What would be the NPV for a company that has a 7% cost of
capital, makes a $110,000 investment in year 0, and then receives Approximately
Assessment 12 $25,000 per year each of the next eight years? $27,780.34
What would be the NPV for a company that has a 8% cost of
capital, makes a $110,000 investment in year 0, and then receives Approximately
Assessment 13 $25,000 per year each of the next eight years? $22,000.34
What would be the NPV for a company that has a 9% cost of
capital, makes a $110,000 investment in year 0, and then receives Approximately
Assessment 14 $25,000 per year each of the next eight years? $16,461.87
What would be the NPV for a company that has a 10% cost of
capital, makes a $110,000 investment in year 0, and then receives Approximately
Assessment 15 $25,000 per year each of the next eight years? $11,147.02

Alternate Lab 9.5 Excel Analysis Questions

1. Why does an investor discount its future cash outflows and cash inflows?
An investor discounts future cash flows in order to account for the time value of money. Money
today is worth more than the same amount in the future due to risk, inflation, and potential
earning potential. By discounting future cash flows, the investor can determine their present
value and make a more well-informed decision.

2. Why will an investor perform a net present value analysis?

By computing the difference between the present value of cash inflows and outflows, an
investor can determine the profitability of an investment using an NPV analysis. It assists the
investor in figuring out whether the venture will yield a profit above its cost of capital.

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