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    Calculating Net Present Value in Excel

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    You purchased land 3 years ago for $84000 and believe its market value is now $93000. You are considering building a hotel on this land instead of selling it. To build the hotel, it will initially cost you $128000, an expense that you plan to depreciate straight line over the next three years. Wells Fargo offered you a loan for $60,000 at an 8% interest rate to be repaid over the next 4 years. You anticipate that the hotel will earn revenues of $240000 each year, while expenses will be a mere $163405 each year. The initial working capital requirement will be $23000 which will be recovered in the last year. The tax rate is 32%. Your estimated cost of capital is 9%. What is the net present value of this project?

    1. ($59,838)
    2. $84,213
    3. $80,495
    4. $38,294
    5. $90,372
    6. $(67,340)

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    Solution Preview

    Cost 84,000
    Market value 93,000
    Hotel investment 128,000
    Depreciation 3 years
    Loan 60,000
    Interest rate 8%
    Payment 4 years
    revenues 240,000
    Expenses 163,405
    Working capital 23,000
    Tax rate 32%
    Cost of capital 9%

    1. Estimate yearly payment for the loan
    Use the present value approach - that is the $60,000 should be equal
    to the present value fo 4 payments at 8%
    You can compute using trial and error OR Goal ...

    Solution Summary

    The following posting helps calculate net present value. The answers are given in an Excel spreadsheet.