2000 2000 2000 2000 2000 2000 2000 2000

1 330 1666 160 280 2200 1200 -350

2 330 334 200 280 900 -60
3 330 165 350 280 300 60
4 330 395 280 90 350
5 330 432 280 70 700
6 330 440 280 1200
7 330 442 280 2250
8 1000 444 280
9 446 280
10 448 280
11 450 280
12 451 280
13 451 280
14 452 280
15 10000 -2000 280

SUM 3310 2165 10000 3561 4200 2200 2560 4150

GPV 2073.086 1914.545 2393.92 2228.222 2129.702 2000 2165.041 2182.984

NPV 73.08559 -85.45455 393.9205 228.222 129.7023 0 165.0409 182.9844

Third project is the best

Excess Return (ER) Method

Payback Period
P1 P2 P3 P4
Year Cash Flow Cum Cash Flow
0 -2000 -2000 -2000 -2000 -2000 -2000
1 330 -1670 1666 -334 160
2 330 -1340 334 200
3 330 -1010 165
4 330 -680
5 330 -350
6 330 -20
7 330
8 1000

PB 6.060606 2 14.2

IRR
P1 P2 P3 P4 P5 P6 P7 P8
0 -2000 -2000 -2000 -2000 -2000 -2000 -2000 -2000
 1 330 1666 0 160 280 2200 1200 -350
2 330 334 0 200 280 0 900 -60
3 330 165 0 350 280 0 300 60
4 330 0 0 395 280 0 90 350
5 330 0 0 432 280 0 70 700
6 330 0 0 440 280 0 0 1200
7 330 0 0 442 280 0 0 2250
8 1000 0 0 444 280 0 0 0
9 0 0 0 446 280 0 0 0
10 0 0 0 448 280 0 0 0
11 0 0 0 450 280 0 0 0
12 0 0 0 451 280 0 0 0
13 0 0 0 451 280 0 0 0
14 0 0 0 452 280 0 0 0
15 0 0 10000 -2000 280 0 0 0
IRR 10.87% 6.31% 11.33% 12.33% 11.12% 10.00% 15.26% 11.41%
SPAN 0.87% -3.69% 1.33% 2.33% 1.12% 0.00% 5.26% 1.41%

EA
P1
NPV 73.08559 -85.45455 393.9205 228.222 129.7023 0 165.0409 182.9844
PVIFA 5.334926 2.486852 7.60608 7.60608 7.60608 0.909091 3.790787 4.868419 Hardcoded value
EA 13.69946 -34.36254 51.79022 30.0052 17.05245 0 43.53737 37.586
PVIF P3 P4
0.909091 1514.545 145.4545 DISCOUNTING 0.1
0.826446 276.0331 165.2893
0.751315 123.9669 262.9602
0.683013 269.7903
0.620921 268.238
0.564474 248.3685
0.513158 226.8159
0.466507 207.1293
0.424098 189.1475
0.385543 172.7234
0.350494 157.7223
0.318631 143.7025
0.289664 130.6386
0.263331 119.0257
0.239392 -478.7841
Hardcoded value
Problem 7.3 with Assumptions
Particulars Y1 Y2 Y3 Y4 Y5
Sales (Units)(g=10%) 6,000 6,600 7,260 7,986 8,785
Selling Price (g=3%) 100 103 106 109 113
Material Cost (g=3%) 20 21 21 22 23
Sales Revenue 600,000 679,800 770,213 872,652 988,714
(-)CGS 120,000 135,960 154,043 174,530 197,743
(-) D&A 20,000 20,000 20,000 20,000 20,000
(-) Rent (g=3%) 50,000 51,500 53,045 54,636 56,275
(-) Salaries (g=3%) 250,000 257,500 265,225 273,182 281,377
(-) Markt Costs (g=3%) 100,000 103,000 106,090 109,273 112,551
EBIT 60,000 111,840 171,811 241,031 320,768
(-) Interest Expense 6,000 6,000 6,000 6,000 6,000 On the debt
PBT 54,000 105,840 165,811 235,031 314,768
(-) Tax (@40%) 21,600 42,336 66,324 94,012 125,907
PAT 32,400 63,504 99,486 141,018 188,861
(+) D&A 20,000 20,000 20,000 20,000 20,000
(±) Delta NWC -7,980 -9,041 -10,244 -11,606 98,871
(±) Net Debt 0 0 0 0 -60,000
FCFE 44,420 74,463 109,243 149,412 247,732
PV of Cash Flows 38,626 56,304 71,829 85,427 123,167

Working Capital 60,000 67,980 77,021 87,265 98,871

 Project Investment Funding
Total Investment 100000
Debt 60000
Equity 40000
Interest 6000

On the debt
P 7.1 in million

Machinery cost 100

No of years 5
D&A per year
op expense % 0.5
Rev 50
Tax 0.4
Cost of capital 0.14
NOPAT 0.6

Y1 Y2 Y3 Y4 Y5

Revenue 50 50 50 50 50

Opex 25 25 25 25 25

D&A 20 20 20 20 20

EBIT 5 5 5 5 5

NOPAT(EBIAT) 3 3 3 3 3

ADD D&A 20 20 20 20 20

After cash flow 23 23 23 23 23

If it loses money for first three years

Revenue 50 50 50 50 50

Opex 25 25 25 25 25

D&A 20 20 20 20 20

EBIT 5 5 5 5 5

NOPAT(EBIAT) 5 5 5 3 3

ADD D&A 20 20 20 20 20

After Cash Flow 25 25 25 23 23

7.2
Cost of equipment 50000
lifetime of project 10

D&A 5000
No of units 15000
Cost of each unit 0.8
Selling price of each unit 2

Total sp 30000

Total cost 12000

Tax rate 0.4

EBIT 13000
% of revenue as inventory 0.25
NOPAT 7800
Amount in inventory 7500
% of salvage 0.8

Salvage value at the end of last year 6000

Y1 Y2

EBIT 5300 12800 12800 12800 12800 12800

7.3

Equipment cost 100,000

Years 5
Rent of office 50000
Marketlinga and Selling 100000
% inc of units 0.1
% INC SP 0.03
% inc CP 0.03
SP per unit 100
CP per unit 20
% WC 0.1
Rent of office 0.03
SALARY 0.03
MKTNG 0.03
NOPAT 0.6
NWC % 0.1
WC at the t0 60000
Cost of capital 0.12
 Y1 Y2 Y3 Y4 Y5
Year 1 2 3 4 5
No of units 6000 6600 7260 7986 8784.6
SP PER UNIT 100 103 106.09 109.2727 112.5509
CP PER UNIT 20 20.6 21.218 21.85454 22.51018
TOTAL SP 600000 679800 770213.4 872651.8 988714.5
TOTAL CP 120000 135960 154042.7 174530.4 197742.9

D&A 20000 20000 20000 20000 20000

RENT 50000 51500 53045 54636.35 56275.44
SALARY 250000 257500 265225 273181.8 281377.2
MKTN 100000 103000 106090 109272.7 112550.9
EBIT 60000 111840 171810.7 241030.6 320768.1
NOPAT 36000 67104 103086.4 144618.4 192460.8
D&A 20000 20000 20000 20000 20000
WC 67980 77021.34 87265.18 98871.45 0
NWC 7980 9041.34 10243.84 11606.27 -98871.45

ATFC 48020 78062.66 112842.6 153012.1 311332.3

PVIF 0.892857142857 0.797194 0.71178 0.635518 0.567427

PV of cash flow 42875 62231.07 80319.13 97241.96 176658.3

 Y10

12800 12800 12800 18800

Cash outflow 160000
 PVI METHOD

RATE 0.1

YEAR CASH PVIF

Y1 1666 0.909091
Y2 334 0.826446
Y3 165 0.751315

GROSS CASH FLOW 1914.545

CASH OUTFLOW 2000

PVI 0.957273

ARR METHOD

YEAR CASH
Y1 1666
Y2 334
Y3 165
2165
TOTAL
NPV METHOD
PVIF
Y1 1666 0.909091
Y2 334 0.826446
Y3 165 0.751315

IRR

Y0 -2000
Y1 1666
Y2 334
Y3 165

EA METHOD

Y1 1666
Y2 334
Y3 165
AVERAGE ANNUAL CASH 721.6667

INITIAL INVESTMENT 2000

ARR 0.360833

GROSS 1914.545
INITIAL INV 2000
NPV -85.45455

IRR 6.3%

PVIFA 2.486852
GROSS 1914.545
INITIAL INV 2000
NPV -85.45455

EA -34.36254