I need help with the spreadsheet below. I need to use present value analysis to discount the cash flows and also need to determine if the project is a net positive or negative impact on the firm, NPV. Calculate the certainty equivalent cash flows and NPV.

I am not quite sure how to calculate this, the equation is very confusing...my next class is Thursday night but the assignment is due Friday--any help would be appreciated.

Spreadsheet:

Year 2005 2006 2007 2008 2009 2009
T = 0 1 2 3 4 5

Risk Free 2.25% 2.50% 2.75% 3.00% 3.25% 3.25%
Rate
Cost of Capital 6.00% 7.00% 8.00% 9.00% 10.00% 11.00%

(US$ millions, incremental)
Net Sales 30 35 40 45 50
Selling, General (20) (18) (15) (12) (12)
& Admin.
Depreciation (10) (10) (10) (10) (10)
Interest Expense (2) (2) (2) (2) (2)
Income Before Taxes (2) 5 13 21 26
Income Taxes 1 (2) (5) (8) (10)
Net Income (1) 3 8 13 16
Capital Investment (50)
Addback Noncash 10 10 10 10 10
Cash Flow (50) 8.76 13.10 18.06 23.02 26.12

markiss16

need help with the spreadsheet below. I need to use present value analysis to discount the cash flows and also need to determine if the project is a net positive or negative impact on the firm, NPV. Calculate the certainty equivalent cash flows and NPV.

I am not quite sure how to calculate this, the equation is very confusing...my next class is Thursday night but the assignment is due Friday--any help would be appreciated.

Spreadsheet:

Year 2005 2006 2007 2008 2009 2009
T = 0 1 2 3 4 5

Risk Free 2.25% 2.50% 2.75% 3.00% 3.25% 3.25%
Rate
Cost of Capital 6.00% 7.00% 8.00% 9.00% 10.00% 11.00%

(US$ millions, incremental)
Net Sales 30 35 40 45 50
Selling, General (20) (18) (15) (12) (12)
& Admin.
Depreciation (10) (10) (10) (10) (10)
Interest Expense (2) (2) (2) (2) (2)
Income Before Taxes (2) 5 13 21 26
Income Taxes 1 (2) (5) (8) (10)
Net Income (1) 3 8 13 16
Capital Investment (50)
Addback Noncash 10 10 10 10 10
Cash Flow (50) 8.76 13.10 18.06 23.02 26.12

mbalady5

This is not as hard as it may seem. They are throwing in a bunch of junk to confuse you. To calculate the NPV think of what that means. NPV is the present value of the investment's future net cash flows minus the initial investment. If that is positive the investment should be made. You can get this answer just using the last cash flow line.

future cash flows-initial investment