Year 0 - 100,000.

00
Year 1 60,000.00
Year 2 80,000.00
Year 3 40,000.00
Year 4 30,000.00

Present Value of Cash 156,118.65

Less: Acquisition Cost - 100,000.00
Net Present Value 56118.653092

Profitability Index Value 1.5611865309

Initial investment 500,000 Year Cash Flow Discount factor (14%)
Yield Cash Flow (Perpetuity) 100,000 0 -500,000 1
Cost of Capital 14% 1 0 0.87719298245614
2 100,000 6.265664160401
Net Present Value

Since the NPV is positive, therefore, the project should be undertaken.

 Present value
-500,000
0
626566.41604
126,566

en.
Years Cash Flow Rate Present value
Year 0 - 100,000.00 - 100,000.00
Year 1 60,000.00 11% 54,054.05
Year 2 80,000.00 12% 71,428.57
Year 3 40,000.00 14% 35,087.72
Year 4 30,000.00 16% 25,862.07
Net Present Value 86,432.41

Profitability Index Value 1.86 The project should be undertaken because higher
NPV indicates a higher profit return as well.
ndertaken because higher
er profit return as well.
Cost of Capital 10%

A B C
Outlay - 750,000.00 - 1,200,000.00 - 2,000,000.00
Year 1 400,000.00 500,000.00 500,000.00
Year 2 500,000.00 600,000.00 1,000,000.00
Year 3 500,000.00 800,000.00 1,500,000.00
Year 4 500,000.00 1,000,000.00 1,500,000.00

Present Value of Cash 1,494,023.63 2,234,478.52 3,432,484.12

Less: Acquisition Cost (750,000.00) (1,200,000.00) (2,000,000.00)
Net Present Value 744,023.63 1,034,478.52 1,432,484.12
IRR 49% 41% 34%