18. A company is evaluating the purchase of a new machine that costs $50,000. The company will also have to pay money each year for maintenance costs. However, the machine will increase profits by several thousand dollars each year. Enter the cost and profit data into a spreadsheet. Since the costs and profits occur over time, you have to discount them to a single point in time. Use the net present value (NPV) function to compute the present value of the costs and profits. Initially, assume the discount rate is 4 percent, but build the spreadsheet so managers can change the value easily. Use the Goal Seek tool to find the discount rate at which the investment breaks even. That is, search for the discount rate that sets the computed net value (net profits-net costs) to zero.
Since the costs and profits occur over time, you have to discount them to a single point in time. Use the net present value (NPV) function to compute the present value of the costs and profits. Initially, assume the discount rate is 4 percent, but build the spreadsheet so managers can change the value easily. Use the Goal Seek tool to find the discount rate at which the investment breaks even. That is, search for the discount rate that sets the computed net value (net profits-net costs) to zero.
Answer: 0.029416197
C02Ex18.xls