Original Cash Flow:

NPV at
Years Cash flows for discount rate IRR
MBAT Plant 20%
Year 0 -1,000,000
Year 1 371,739
-37,666 18%
Year 2 371,739
Year 3 371,739
MBAT suggested four alternatives:
[A]Subsidize the project to bring its IRR to 25%.
Years Year 0 Year 1 Year 2 Year 3
Cash flows for MBAT Plant -1,000,000 371,739 371,739 371,739
NPV at discount rate 25% -122,101.18
IRR 25%

Year Year 0 Year 1 Year 2 Year 3

Cash flows for MBAT Plant -877,898 371,739 371,739 371,739
NPV at discount rate 20% 84,435.60
IRR 25%
Subsidy At IRR 25% -122,101.18

[B] Subsidize the project to provide a two-year payback.

Year Year 0 Year 1 Year 2 Year 3
Cash flows for MBAT Plant -743,478 371,739 371,739 371,739
NPV at discount rate 20% 218,855.60
IRR 35%
Subsidy At IRR 35% -256,481.46

Year 0 Year 1 Year 2 Discount

rate
$ 256,522.00 - - 20%
- $ 128,261.00 $ 128,261.00 20%
- - $ 256,522.00 20%
 [C] Subsidize the project to provide an NPV of $75,000 when cash flows are discounte

Year Year 0 Year 1

Cash flows for MBAT Plant -1,000,000 371,739

NPV at discount rate 20% -37,666.40
NPV target 75,000.00
Subsidy at year 0 112,666.40

Year Year 0 Year 1

Year 4 Cash flows for MBAT Plant -887,334 371,739
371,739 NPV target at discount rate 20% 74,999.60

Which Plan will recommend : NPV at 20% for four years

Year 4
371,739 NPV values NPV at discount 20% ov
Plan A 122,101 5
Plan B 256,522 12
Plan C 112,666 5
Plan D 173,913 8

Year 4
371,739

PV at year 0

$ 256,522.00
$195,954.31
$178,140.28
hen cash flows are discounted at 20%.

Year 2 Year 3 Year 4

371,739 371,739 371,739

-37,666.40
75,000.00
112,666.40

Year 2 Year 3 Year 4

371,739 371,739 371,739
74,999.60

NPV at discount 20% over four years, NPV /(1.2)^4

58,884
123,709
54,334
83,870
Original Cash Flow: