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Lab Insight: There are a few tools that managers use to evaluate the profitability of potential investments. The net present value (NPV) gives the difference between the present value of expected cash inflows and the cost of cash outflows less the costs of acquiring the investment. We use the company’s cost of capital as the benchmark for the costs of acquiring the investment. In general, if the present value of cash flows is not greater than the costs of acquiring the investment, there is no reason to pursue that investment.
Net present value also serves as one of many tools to help rank various alternate, competing capital investments within the investments. Although we can’t completely predict the future, we can optimize based on what we expect will happen.
Required:
- Calculate the net cash flows over the life of each investment.
- Use Excel’s NPV() function to evaluate the potential capital investments.
Ask the Question: How can NPV be used to evaluate potential capital investments?
Master the Data: Apply the same steps as Lab 9-3 to the Alt Lab 9-3 Data.xlsx dataset.
Mark Wagstaff is trying to evaluate the profitability of three investments. Use the Excel NPV() function to evaluate the potential investments.
Software needed
- Excel
- Screen capture tool (Windows: Snipping Tool; Mac: Cmd+Shift+4)
Data: Alt Lab 9-3 Data.xlsx
Perform the Analysis: Refer to Lab 9-3 Alternate in the text for instructions and Lab 9-3 steps for each the of lab parts.
Upload the Word or PDF document containing your Lab screenshots using the button below.
Note: Please submit your file attachment response in one of the approved file formats; Word file (.doc or .docx), Excel file (.xls or .xlsx), or PDF. To submit photo or image files please paste them into Word or PDF. Consult with your instructor as needed on their preferred file attachment format.
Take a screenshot of the NPV analysis, paste it into a Word document named “Alt Lab 9-3 Excel SS.doc”, and label the screenshot Submission 1.