The computational portion of this case requires the completion of Exhibit 3-4.1. If you use the template, you will need to insert eight more columns so that each year has a separate column. If you solve it without a template, you will need to set up your spreadsheet so that each year has a separate column. The "no purchase cash flows" are given to you for each equipment purchase alternative. Leave them at the negative amount shown. You don’t need to change these numbers.
The cash inflows and outflows categories that you need to enter are the revenue and expense categories on the Exhibit 3-4.2 income statement that represent cash flows (except interest). If you combine selling and administrative categories, you should have exactly six cash inflows and outflows, the number of blank spaces provided in Exhibit 3-4.1. The missing cash inflows and outflows for both the $108,000,000 and $72,000,000 alternatives should be the same except for the tax outflows. Note that tax outflows are computed at the bottom of each alternative and the total for each year is brought up above.
The easiest way to compute NPV and IRR is to use the Excel (or other
spreadsheet software) commands which will take all of your total cash flows
for each alternative and compute the NPV or IRR. Use the help function or
the Excel spreadsheet tutorial to find the formula. The NPV and IRR for
the $108,000,000 alternative are about $14,450,000 and 18.6% respectively.
