Change in Cash Flow Pattern

Project D
Year D PV@8% I PV@8%
0 -1200 -1200
1 1000 926 100 92.5
2 500 429 600 514.4
3 100 79 1080 857
NPV=234 NPV=264
IRR=23.1% IRR= 18.1%

NPV D @ 8%= 1434-1200=234

PV@ 8%=1434

PV@25%= 800+320+51=1171

(𝑖𝐻 −𝑖𝐿 )(𝑃𝑉𝐿− 𝑃𝑉𝐼𝐶𝑂)

IRR D= 𝑖𝐿 +
(𝑃𝑉𝐿− 𝑃𝑉𝐻)

(0.25−0.08)(1434−1200)
IRR D=0.08 + =0.231 or 23.1%
(1434−1171)

𝑃𝑉 𝑜𝑓 𝐼𝑛𝑓𝑙𝑜𝑤𝑠 1434
Profitability Index @ 8%= = =1.195
𝑂𝑢𝑡𝑓𝑙𝑜𝑤 1200

NPV @10%=197.4

NPV 12%=162.6

NPV I @ 8%=1464.2-1200=264.23

PV@ 25%=80+384+556=1020
(0.25−0.08)(1464.2−1200)
IRR D= 0.08 + =18.1%
(1464.2−1020)

𝑃𝑉 𝑜𝑓 𝐼𝑛𝑓𝑙𝑜𝑤𝑠 1464
Profitability Index @ 8%= = =1.22
𝑂𝑢𝑡𝑓𝑙𝑜𝑤 1200
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NPV @10%=198

NPV 12%=136.3

Project D

NPV @8%=234

NPV @10%=197.4

NPV 12%=162.6

Project I

NPV @8%=264

NPV @10%=198

NPV 12%=136.2
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Difference in Duration of Project

Year A PV 8.4% Project B

0 -10000 -5000
1 2000 1750
2 3500 3250
3 3250 3000
4 3000
5 2750
6 2500
NPV= 2926 NPV B =1735
IRR=20.7& IRR=26.24%

PV@ 8.4%=12926

PV @25%= 8290
(0.25−0.084)(12926−10,000)
IRR A= 0.084 + = 20.7%
12926−8290

PV@ 8.4%=6735

PV @30%= 4634.7

(0.30−0.084)(6735−5,000)
IRR= 0.084 + =0.2624 or 26.24%
6735−4634.7

𝑁𝑃𝑉
Equivalent Annuity Method= 1−(1+𝑖)−𝑛
𝑖
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2926
Equivalent Annuity A= 1−(1+0.084)−6 =640.6
0.084

1735
Equivalent Annuity Method= 1−(1+0.084)−3 =678
0.084