In Cell B15, Enter A Formula To Calculate The Net Present Va

10 In Cell B15 Enter A Formula To Calculate The Net Present Value Of

In cell B15, enter a formula to calculate the net present value of buying the computer system by adding the initial investment in cell E2 to the present value of the cash flows in the range E3:E39. Use the NPV function with the monthly discount rate in cell B14 as the rate of return to calculate the total cost of purchasing the computer system if Linda proceeds with the purchase.

Similarly, in cell B16, enter a formula to calculate the net present value of leasing by adding the initial investment from cell F2 to the present value of the cash flows in range F3:F39. Again, utilize cell B14 as the rate of return for the calculations, which will provide the total cost to lease the computer equipment.

Next, use the goal seek feature to determine the monthly payment for leasing that results in the net present value of leasing exactly matching the net present value of buying. When setting up goal seek, ensure that you explicitly input the net present value of the purchase option in the dialog box to accurately find the necessary payment amount.

After identifying the lease payment, reset it to its original value of $XXX (the initial payment figure given in your data). Recognize that the resale value of the computer system after 36 months may be uncertain; therefore, perform another goal seek analysis to find the resale value that makes the net present value of buying equivalent to leasing, underlining a comprehensive comparison.

Finally, save the workbook as "Digital Frames 2," then update the resale value to the necessary amount and save once more as "Digital Frames 3" before closing the file.

Paper For Above instruction

The decision to purchase or lease a computer system involves comprehensive financial analysis using techniques such as net present value (NPV) calculations and goal seek functionality within spreadsheet software, typically Microsoft Excel. These analytical tools allow for evaluating the effective cost over time considering factors like cash flows, discount rates, and residual value, thus supporting informed investment choices.

NPV calculations are fundamental in this context. They involve discounting all relevant cash flows—initial investments, repayments, and residual values—to their present values using a specified rate of return. The rate, stored in cell B14, reflects the monthly discount rate, which is critical as it accounts for the time value of money. The formula in cell B15 estimates the total purchase cost by summing the initial investment (cell E2) and the present value of all future cash flows (cells E3 to E39) for the buy scenario. This provides a comprehensive measure of the total expenditure associated with buying the computer system.

Similarly, in cell B16, the net present value of leasing is calculated by adding the initial investment from cell F2 to the present value of leasing cash flows (cells F3 to F39), offering a parallel financial perspective. These calculations help compare the total costs of buying versus leasing over the contract period.

The goal seek function enhances this analysis by finding the exact lease payment that makes the NPV of leasing equal to the NPV of buying. This process involves setting the net present value of leasing in the calculation to match that of the purchase option, thus pinpointing the payment level at which the two options are financially equivalent. By explicitly entering the purchase NPV into the goal seek dialog, precision is ensured in this comparison.

Further, the analysis considers uncertainty in resale value after 36 months. Using goal seek, the resale value is adjusted until the NPV of buying aligns with leasing costs, providing insight into how residual value assumptions impact overall purchase evaluations. These steps reinforce the importance of sensitivity analysis in financial decision-making.

Throughout this process, it is essential to document all assumptions, such as discount rates, initial investments, and expected cash flows. These details underpin the calculations and ensure transparency and reproducibility of the analysis. Proper saving and version control—saving the workbook with different names—facilitate tracking changes and scenario testing, essential practices for sound financial planning.

In conclusion, financial evaluation of the computer system purchase versus leasing involves detailed NPV computations complemented by goal seek tools in Excel. This method provides a practical approach to quantify costs, assess risk, and make informed decisions aligned with fiscal objectives.

References

  • Brealey, R. A., Myers, S. C., & Allen, F. (2020). Principles of Corporate Finance (13th ed.). McGraw-Hill Education.
  • Damodaran, A. (2018). Investment Valuation: Tools and Techniques for Determining the Value of Any Asset (3rd ed.). Wiley Finance.
  • Excel Easy. (2023). How to use Goal Seek in Excel. Retrieved from https://www.excel-easy.com/examples/goal-seek.html
  • Investopedia. (2023). Net Present Value (NPV). Retrieved from https://www.investopedia.com/terms/n/npv.asp
  • Ross, S. A., Westerfield, R. W., & Jaffe, J. (2019). Corporate Finance (12th ed.). McGraw-Hill Education.
  • Shapiro, A. C. (2021). Multinational Financial Management. Wiley.
  • Swenson, D. W., & Zyla, T. R. (2019). Financial Statement Analysis and Decision Making. Pearson.
  • Tracy, P. (2016). How to Use NPV Analysis for Financial Decision-Making. Harvard Business Review.
  • Watson, D., & Head, A. (2019). Corporate Finance: Principles and Practice. Pearson Education.
  • Young, S., & Smith, A. (2017). Financial Modelling in Excel. Wiley.

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