Project A:

Year 1 Year 2 Year 3 Year 4 Year 5

Savings 8,000 8,000 8,000 8,000 8,000
Less Depreciation 5,600 8,960 5,376 3,226 3,226
Profit Before Tax 2,400 (960) 2,624 4,774 4,774
Less Tax 816 (326) 892 1,623 1,623
Profit after Tax 1,584 (634) 1,732 3,151 3,151
Add Depreciation 5,600 8,960 5,376 3,226 3,226
7,184 8,326 7,108 6,377 6,377

Payback Period = $ 22,618 is recovered in 3 years and balance $ 5,382 will be recovered in 4t
out of cash flow of $ 6,377
Payback Period = 3 years add 5382/6377 of a year
Payback Period = 3.84 years

Discounted Factor @ Discounted

Years Cash Flows 14% NPV
0 (28,000) 1 (28,000)
1 7,184 0.87719298245614 6,302
2 8,326 0.769467528470298 6,407
3 7,108 0.674971516202016 4,798
4 6,377 0.59208027737019 3,776
5 6,377 0.519368664359815 3,312
6 5,828 0.455586547684048 2,655
7 5,280 0.399637322529867 2,110
NPV 1,359 29,359
PI 1.0485

Profitability Index = Present Value /initial cash outflow

Project A
Profitability Index = 29359/28000
Profitability Index = 1.048
 Year Dep Rate
Year 6 Year 7 1 20.00%
8,000 8,000 2 32.00%
1,613 3 19.20%
6,387 8,000 4 11.52%
2,172 2,720 5 11.52%
4,216 5,280 6 5.76%
1,613 -
5,828 5,280
Year Cash Flows
1 7,184
l be recovered in 4th year 2 8,326
3 7,108
r 4 6,377
5 6,377
6 5,828
7 5,280

Discounted Factor @
20% NPV
1 (28,000)
0.833333333333333 5,987
0.694444444444444 5,782
0.578703703703704 4,113
0.482253086419753 3,075
0.401877572016461 2,563
0.334897976680384 1,952
0.279081647233653 1,474
NPV (3,054) 24,946 4,414
IRR 0.1584754 15.85%

IRR = Lower rate add NPV at lower rate / (NPV at lowe rate add
NPV at higher rate) * Difference
IRR= 0.14+(1359/4,414)*0.06
IRR= 15.85%
 Dep
5600
8960
5376
3226
3226
1613

Cumulative Cash Flows

7,184
15,510
22,618 5,382
28,995 0.84
35,372 3.84 years
41,200
46,480
Project B:
Year 1 Year 2 Year 3 Year 4 Year 5
Savings 5,000 5,000 6,000 6,000 7,000
Less Depreciation 4,000 6,400 3,840 2,304 2,304
Profit Before Tax 1,000 (1,400) 2,160 3,696 4,696
Less Tax 340 (476) 734 1,257 1,597
Profit after Tax 660 (924) 1,426 2,439 3,099
Add Depreciation 4,000 6,400 3,840 2,304 2,304
4,660 5,476 5,266 4,743 5,403

Payback Period = $ 15,402 is recovered in 3 years and balance $ 4,598 will be recovered in 4
out of cash flow of $ 4,743
Payback Period = 3 years add 4598/4743 of a year
Payback Period = 3.97 years

Discounted Factor @ Discounted

Years Cash Flows 14% NPV
0 (20,000) 1 (20,000)
1 4,660 0.87719298245614 4,088
2 5,476 0.769467528470298 4,214
3 5,266 0.674971516202016 3,554
4 4,743 0.59208027737019 2,808
5 5,403 0.519368664359815 2,806
6 5,012 0.455586547684048 2,283
7 4,620 0.399637322529867 1,846
NPV 1,600 21,600
PI 1.0800

Profitability Index = Present Value /initial cash outflow

Project B
Profitability Index = 21600/20000
Profitability Index = 1.08
 Year Dep Rate
Year 6 Year 7 1 20.00%
7,000 7,000 2 32.00%
1,152 3 19.20%
5,848 7,000 4 11.52%
1,988 2,380 5 11.52%
3,860 4,620 6 5.76%
1,152 -
5,012 4,620
Year Cash Flows
1 4,660
l be recovered in 4th year 2 5,476
3 5,266
r 4 4,743
5 5,403
6 5,012
7 4,620

Discounted Factor @
20% NPV
1 (20,000)
0.833333333333333 3,883
0.694444444444444 3,803
0.578703703703704 3,047
0.482253086419753 2,288
0.401877572016461 2,171
0.334897976680384 1,678
0.279081647233653 1,289
NPV (1,840) 18,160 3,440
IRR 0.1679059 16.79%

IRR = Lower rate add NPV at lower rate / (NPV at lowe rate add
NPV at higher rate) * Difference
IRR= 0.14+(1600/3,440)*0.06
IRR= 16.79%
 Dep
4000
6400
3840
2304
2304
1152

Cumulative Cash Flows

4,660
10,136
15,402 4,598
20,145 0.97
25,548 3.97 years
30,560
35,180