step to step solution if you are using value from a table please display them so

Question

step to step solution if you are using value from a table please display them so i can see the value of them. I need to see the steps to get the answers. thanks


microsoft excel project
Question Details
Make a microsoft excel spreadsheet


suppose you are studying two hardware lease proposals. Option 1 costs $ 4000, but requires that the entire amount be paid in advance. Option 2 costs $ 5000 , but the paymenents can be made $1000 now and $1000 per year for the next four years. if you do NPV (net present value) analysis assuming a 14% discount rate, which proposal is less expensive? what happens if you use an 8% rate?

Explanation / Answer

You don't use NPV since the cash flow is in one direction only, you use just PV (Present Value) Obviously option 1 is just $4000, there is no calculation involved since it's paid upfront with no discount rate applied. For Option 2, type in any cell the following line without quotation marks: "=-PV(14%,4,1000)+1000" The 14% is the rate, 4 is the amount of times paid (PV in Excel uses ordinary annuity not annuity due, to rectify this you use 1 less period and then add the initial immediate payment). Also, PV is negative in excel, because it assumes you are paying the annuity not vice versa, so take the negative as your answer. The Pv at 14% is $3913.71 The PV at 8% is $4,312.13 Therefore it's better to take Option 1 if the discount rate is 14%. If the discoutn rate is 8% you are better of taking Option 2.

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