Kilby Company is considering the purchase of new automated manufacturing equipment that would cost [tex]\$150,000[/tex]. The equipment would save [tex]\$42,500[/tex] in labor costs per year over its six-year life. At the end of the fourth year, the equipment would require an overhaul that would cost [tex]\$25,000[/tex]. The equipment would have a [tex]\$7,500[/tex] salvage value at the end of its life. Kilby's cost of capital is 12 percent.

**Required**

Complete the spreadsheet to calculate the net present value, the present value index, and the internal rate of return.

- Negative amounts or amounts to be deducted should be input and displayed as negative values. All other answers should be input and displayed as positive values.

**Spreadsheet Tips**

1. **Net Present Value (NPV):**
- Use the formula: [tex]=NPV(\text{rate}, \text{value1}, \text{value2}, \text{value3}, \ldots, \text{value29})[/tex], where up to 29 values are allowed. The values must be at the end of the period, and each period must be equal in time (e.g., one year).
- Example formula: [tex]=NPV(B17, C21, C22, C23, C24, C25, C26) + C20[/tex].

2. **Internal Rate of Return (IRR):**
- Use the formula: [tex]=IRR(\text{values}, \text{guess})[/tex], where values is the range that includes the cash flows (C20 to C26) and guess is an estimate of the rate. Use the cost of capital as the guess.

3. **Percentage:**
- Rather than entering [tex]12\%[/tex] directly in the formulas, refer to cell B17. This will allow you to change the rate and see the effect on the NPV and present value index.

4. **Present Value Index:**
- Construct a formula manually as there is no built-in function for it.