The administration acquires information.

Initial investment is $245,000.

Investment in working capital is $5,000.
Useful life is three years.
Estimated residual value is zero.
Net cash savings is $125,000, $130,000, and $110,000 over its life.
Working capital is expected to be recovered at the end of year 3
with an expected return of 10%.
Operating cash flows are assumed to occur at the end of the year.
In the selection stage, management must decide whether to purchase
the new machine.

ARR
Year 1 Year 2 Year 3
Net Cash Saving 125000 130000 110000
Depreciation 245000/3 81667 81667 81667
Profit for the Period 43333 48333 28333

ARR Average Profit / Intial Investment

Payback Period
Cash Flows Cu. Cash Flows
Year 0 -250000 -250000
Year 1 125000 -125000
Year 2 130000 5000 one Year 11 Months
Year 3 115000 120000
11.53846154 0.538461538

Year 0 Year 1 Year 2 Year 3

Intial Investment -245000
Working Capital -5000 5000
Net Cash Saving 125000 130000 110000
Net Cash flows -250000 125000 130000 115000
Discount Factor 10% 1/(1+R)^n 1 0.9091 0.8264 0.7513
Discounted Cash Flows -250000 113636 107438 86401

NPV 57476
 15%
Year 0 Year 1 Year 2 Year 3
Intial Investment -245000
Working Capital -5000 5000
Net Cash Saving 125000 130000 110000
Net Cash flows -250000 125000 130000 115000
Discount Factor 15% 1/(1+R)^n 1 0.8696 0.7561 0.6575
Discounted Cash Flows -250000 108696 98299 75614

NPV 32609

20%
Year 0 Year 1 Year 2 Year 3
Intial Investment -245000
Working Capital -5000 5000
Net Cash Saving 125000 130000 110000
Net Cash flows -250000 125000 130000 115000
Discount Factor 20% 1/(1+R)^n 1 0.8333 0.6944 0.5787
Discounted Cash Flows -250000 104167 90278 66551

NPV 10995

25%
Year 0 Year 1 Year 2 Year 3
Intial Investment -245000
Working Capital -5000 5000
Net Cash Saving 125000 130000 110000
Net Cash flows -250000 125000 130000 115000
Discount Factor 25% 1/(1+R)^n 1 0.8000 0.6400 0.5120
Discounted Cash Flows -250000 100000 83200 58880

NPV -7920

IRR 20% + 10995 x (25%-20%

(10995-(-7920)

22.91%

Disconted Payback Period

Cash Flows Cu. Cash Flows
Year 0 -250000 -250000
Year 1 113636 -136363.64
Year 2 107438 -28925.62 2 yeas and 4
Year 3 86401 57475.582
Total
365000
245000
120000 40000

16%

16 days

16.153846154
22.827%
Months
A Company plan to invest in equipment that will cost Rs 1,000,000 and expected to generate a net cash flow of Rs 275,000 en
end of the second year, 460,000 ends of the third year, Rs 310,000 at the end of the fouth year, and Rs 125,000 end of the fift
equipment will be five years and scrap value of end of five year Rs 25,000. Evaluate the investment project by using

ARR
Payback
NPV if the expected rate of return is 18%. and IRR

ARR
Year 1 Year 2 Year 3 Year 4 Year 5
Net Cash Flows 275000 380000 460000 310000 125000
Depreciation -195000 -195000 -195000 -195000 -195000
Profit 80000 185000 265000 115000 -70000

ARR Average Profit/ Intial Investment 11.50%

PayBack Period
Cash Flows Cu. Cash Flows
Year 0 -1000000 -1000000
Year 1 275000 -725000
Year 2 380000 -345000 2 years and 9 Months
Year 3 460000 115000
Year 4 310000 425000
Year 5 150000 575000

NPV Year 0 Year 1 Year 2 Year 3 Year 4 Year 5

Intial Investment -1000000

Scrap Value 25000
Cash Flows 275000 380000 460000 310000 125000
Total Cash flows -1000000 275000 380000 460000 310000 150000
Discount Factor 18% 1 0.8475 0.7182 0.6086 0.5158 0.4371
Discounted Cash Flows -1000000 233051 272910 279970 159895 65566

NPV 11392

NPV 23%
Year 0 Year 1 Year 2 Year 3 Year 4 Year 5

Intial Investment -1000000

Scrap Value 25000
Cash Flows 275000 380000 460000 310000 125000
Total Cash flows -1000000 275000 380000 460000 310000 150000
Discount Factor 23% 1 0.8130 0.6610 0.5374 0.4369 0.3552
Discounted Cash Flows -1000000 223577 251173 247197 135438 53280

NPV -89335

IRR 18.57% 18.52%

 ate a net cash flow of Rs 275,000 end of the first year, Rs 380,000
h year, and Rs 125,000 end of the fifth year. The useful lifetime of
nvestment project by using

Total
1550000
-975000
575000 115000
Kalindu Company LED plan to invest in new machinery that will cost Rs 2,500,000 and expected to generate a cash inflow of R
year, Rs 990,000 end of the second year, 960,000 ends of the third year, Rs 900,000 at the end of the fourth year, and Rs 925
In order to generate the above cash flows, the company will incur the following cash outflow of Rs 275,000 end of the first ye
second year, 360,000 ends of the third year, Rs 210,000 at the end of the fourth year, and Rs 315,000 end of the fifth year.

The useful lifetime of machinery will be five years and scrap value of end of five Rs 500,000. The company adopt the straight-

The corporate tax rate is 28%, a a capital allowance is 25% can claim against the profit.

year 1 year 2 year 3 year 4 year 5

Cash Inflows 975000 990000 960000 900000 925000
Cash Outflows -275000 -350000 -360000 -210000 -315000
Net Cash flows Before Tax 700000 640000 600000 690000 610000
Depreciation -400000 -400000 -400000 -400000 -400000
Profit Before Tax 300000 240000 200000 290000 210000
Tax Amount -21000 -4200 7000 -18200 -310800
Profit After Tax 279000 235800 207000 271800 -100800

ARR Average Profit/Initial Investment 7.14%

Tax Calculation
Net Cash flows Before Tax 700000 640000 600000 690000 610000
Capital Allowance 25% -625000 -625000 -625000 -625000
Profit from Scrap Value 500000
Taxable Profit 75000 15000 -25000 65000 1110000
28% Tax 21000 4200 -7000 18200 310800

Payback Period
Year 0 Year 1 Year 2 Year 3 Year 4 Year 5
Net Cash flows before Tax -2500000 700000 640000 600000 690000 610000
Scrap Value 500000
Tax Amount -21000 -4200 7000 -18200 -310800
Net Cash flows After Tax -2500000 679000 635800 607000 671800 799200
Cum. Cash Flows -2500000 -1821000 -1185200 -578200 93600 892800

3 years and 10 months 10 Days

NPV
Year 0 Year 1 Year 2 Year 3 Year 4 Year 5
Intial Investment -2500000
Scrap Values 500000
Net Cash flows Before Tax 700000 640000 600000 690000 610000
Tax Amount -21000 -4200 7000 -18200 -310800
Net Cash flows After Tax -2500000 679000 635800 607000 671800 799200
Discount Factor 10% 1 0.9091 0.8264 0.7513 0.6830 0.6209
Discounted Cash Flows -2500000 617273 525455 456048 458848 496240

NPV 53864

NPV 15%
Year 0 Year 1 Year 2 Year 3 Year 4 Year 5
Intial Investment -2500000
Scrap Values 500000
Net Cash flows Before Tax 700000 640000 600000 690000 610000
Tax Amount -21000 -4200 7000 -18200 -310800
Net Cash flows After Tax -2500000 679000 635800 607000 671800 799200
Discount Factor 15% 1 0.8696 0.7561 0.6575 0.5718 0.4972
Discounted Cash Flows -2500000 590435 480756 399112 384104 397344

NPV -248249.24

IRR 10.89% 10.82%

d to generate a cash inflow of Rs 975,000 end of the first
of the fourth year, and Rs 925,000 end of the fifth year.
f Rs 275,000 end of the first year, Rs 350,000 end of the
15,000 end of the fifth year.

e company adopt the straight-line basic for depreciation

Total
4750000
-1510000
3240000
-2000000
1240000
-347200
892800 178560

-2500000
 Net after tax cash flows (*000)
Project Years
0 1 2 3 4 5
A -5000 1500 1400 1800 1200 1200
B -5000 1500 1200 1500 2500 1000

Project A Year 0 Year 1 Year 2 Year 3 Year 4 Year 5

Cash Flows -5000 1500 1400 1800 1200 1200
Cu. Cash flow -5000 -3500 -2100 -300 900 2100

Payback period 3 year 3 Months

Project B
Year 0 Year 1 Year 2 Year 3 Year 4 Year 5
Cash Flows -5000 1500 1200 1500 2500 1000
Cu. Cash flow -5000 -3500 -2300 -800 1700 2700

Payback period 3 years 4 Months

ARR

Project A Year 0 Year 1 Year 2 Year 3 Year 4 Year 5

Cash Flows after Tax -5000 1500 1400 1800 1200 1200
Depreciation -714 -714 -714 -714 -714
Profit After tax 786 686 1086 486 486

Average Profit 500

ARR Average Profit / Initial Investment 10.00%

Project B
Year 0 Year 1 Year 2 Year 3 Year 4 Year 5
Cash Flows after Tax -5000 1500 1200 1500 2500 1000
Depreciation -1000 -1000 -1000 -1000 -1000
Profit After tax 500 200 500 1500 0
Average Profit

ARR Average Profit / Initial Investme 10.80%

NPV
Project A Year 0 Year 1 Year 2 Year 3 Year 4 Year 5
Cash Flows after Tax -5000 1500 1400 1800 1200 1200
Discount Factor 10% 1 0.9091 0.8264 0.7513 0.6830 0.6209
Discounted Cash flows -5000 1364 1157 1352 820 745

NPV 1197

Project B
Year 0 Year 1 Year 2 Year 3 Year 4 Year 5
Cash Flows after Tax -5000 1500 1200 1500 2500 1000
Discount Factor 10% 1 0.9091 0.8264 0.7513 0.6830 0.6209
-5000 1364 992 1127 1708 621

NPV 811

IRR

Project A Year 0 Year 1 Year 2 Year 3 Year 4 Year 5

Cash Flows after Tax -5000 1500 1400 1800 1200 1200
Discount Factor 15% 1 0.8696 0.7561 0.6575 0.5718 0.4972
Discounted Cash flows -5000 1304 1059 1184 686 597

NPV at 15% 401

Project A Year 0 Year 1 Year 2 Year 3 Year 4 Year 5

Cash Flows after Tax -5000 1500 1400 1800 1200 1200
Discount Factor 20% 1 0.8333 0.6944 0.5787 0.4823 0.4019
Discounted Cash flows -5000 1250 972 1042 579 482

NPV at 20% -240

IRR 15%+(401/(401-(-240)))*(20%-15%) 18.13%

Project B
Year 0 Year 1 Year 2 Year 3 Year 4 Year 5
Cash Flows after Tax -5000 1500 1200 1500 2500 1000
Discount Factor 15% 1 0.8696 0.7561 0.6575 0.5718 0.4972
Discounted Cash flows -5000 1304 907 986 1429 497

NPV at 15% 125

Project B
Year 0 Year 1 Year 2 Year 3 Year 4 Year 5
Cash Flows after Tax -5000 1500 1200 1500 2500 1000
Discount Factor 20% 1 0.8333 0.6944 0.5787 0.4823 0.4019
Discounted Cash flows -5000 1250 833 868 1206 402

Discount Factor 20% -441

IRR 16.10%

5 and 7
Equal Life Method

Project A Year 0 Year 1 Year 2 Year 3 Year 4 Year 5

Cash Flows after Tax -5000 1500 1400 1800 1200 1200

-5000 1500 1400 1800 1200 1200

Discount Factor 10% 1 0.9091 0.8264 0.7513 0.6830 0.6209
-5000 1364 1157 1352 820 745

NPV 2372

Equal Life Method

Project B
Year 0 Year 1 Year 2 Year 3 Year 4 Year 5
Cash Flows after Tax -5000 1500 1200 1500 2500 1000
-5000

-5000 1500 1200 1500 2500 -4000

Discount Factor 10% 1 0.9091 0.8264 0.7513 0.6830 0.6209
Discounted Cash flows -5000 1364 992 1127 1708 -2484

NPV 2063
 1 2 3 4 5
Annual Equalant Value Method 1 0.9091 0.8264 0.7513 0.6830 0.6209
0.9091 1.7355 2.4869 3.1699 3.7908
Project A 3.7908
NPV at 10% 1197 7 Year Prasent Value Annivity factor PVAF

Annual Equalant Value project A 246

Project B
NPV at 10% 811 5 year present Value Annivity Factor

Annual Equalant Value Project B 214

*000)

6 7
800 600

Year 6 Year 7
800 600
2900 3500

Year 6 Year 7

Year 6 Year 7
800 600
-714 -714
86 -114 3500
500

2700
540
Year 6 Year 7
800 600
0.5645 0.5132
452 308

Year 6 Year 7
800 600
0.4323 0.3759
346 226

Year 6 Year 7
800 600
0.3349 0.2791
268 167
Year 6 Year 7 Year 8 Year 9 Year 10 Year 11 Year 12 Year 13 Year 14 Year 15
800 600
-5000 1500 1400 1800 1200 1200 800 600
-5000 1500

800 -4400 1500 1400 1800 1200 1200 800 -4400 1500
0.5645 0.5132 0.4665 0.4241 0.3855 0.3505 0.3186 0.2897 0.2633 0.2394
452 -2258 700 594 694 421 382 232 -1159 359

Year 6 Year 7 Year 8 Year 9 Year 10 Year 11 Year 12 Year 13 Year 14 Year 15

1500 1200 1500 2500 1000

-5000 1500 1200 1500 2500 1000
-5000

1500 1200 1500 2500 -4000 1500 1200 1500 2500 -4000
0.5645 0.5132 0.4665 0.4241 0.3855 0.3505 0.3186 0.2897 0.2633 0.2394
847 616 700 1060 -1542 526 382 434 658 -958
 6 7
0.5645 0.5132 4.8684
4.3553 4.8684
Year 16 Year 17 Year 18 Year 19 Year 20 Year 21 Year 22 Year 23 Year 24 Year 25

1400 1800 1200 1200 800 600

-5000 1500 1400 1800 1200

1400 1800 1200 1200 800 -4400 1500 1400 1800 1200
0.2176 0.1978 0.1799 0.1635 0.1486 0.1351 0.1228 0.1117 0.1015 0.0923
305 356 216 196 119 -595 184 156 183 111

Year 16 Year 17 Year 18 Year 19 Year 20 Year 21 Year 22 Year 23 Year 24 Year 25

1500 1200 1500 2500 1000

-5000 1500 1200 1500 2500 1000
-5000

1500 1200 1500 2500 -4000 1500 1200 1500 2500 -4000
0.2176 0.1978 0.1799 0.1635 0.1486 0.1351 0.1228 0.1117 0.1015 0.0923
326 237 270 409 -595 203 147 168 254 -369
Year 26 Year 27 Year 28 Year 29 Year 30 Year 31 Year 32 Year 33 Year 34 Year 35

1200 800 600

-5000 1500 1400 1800 1200 1200 800 600

1200 800 -4400 1500 1400 1800 1200 1200 800 600
0.0839 0.0763 0.0693 0.0630 0.0573 0.0521 0.0474 0.0431 0.0391 0.0356
101 61 -305 95 80 94 57 52 31 21

Year 26 Year 27 Year 28 Year 29 Year 30 Year 31 Year 32 Year 33 Year 34 Year 35

1500 1200 1500 2500 1000

-5000 1500 1200 1500 2500 1000
1500 1200 1500 2500 -4000 1500 1200 1500 2500 1000
0.0839 0.0763 0.0693 0.0630 0.0573 0.0521 0.0474 0.0431 0.0391 0.0356
126 92 104 158 -229 78 57 65 98 36
Sub contractor at the cost of Rs. 2,000 5%

Year Year 01 Year 02 Year 03

Waste (metric tons) 10,000 11,000 12,000

Year 01 Year 02 Year 03

Price for Dispose per ton 2000 2100 2205
Numbers of Waste Tons 10 11 12
Sub Contractor Payment for Year 20,000 23,100 26,460

Waste (metric tons) 10 11 12

Compost produce 30% tons 3 3.3 3.6
Sale price for Compost 8000 8000 8000
Compost selling Revenue 24000 26400 28800

project feasibility study already Spend 1000 This will not consider for

Initial Cost of Machine 100000

Scrap Value 20000

Labour Cost 4*120 480 480 480

Transfer Surpevisor 360 360 360

Especial supervisor 420 420 420

Land Rental 2000 2000 2000

operational costs 4000 6000 8000

Year 00 Year 01 Year 02 Year 03

Initial Cost of Machine -100000
Scrap Value

Cost Saving - Sub Contractor 20,000 23,100 26,460

Revenue from Compost Selling 24,000 26,400 28,800
Labour Cost 4*120 -480 -480 -480
Transfer Surpevisor -360 -360 -360
Especial supervisor -420 -420 -420
Land Rental -2000 -2000 -2000
Operational costs -4000 -6000 -8000
Net Cash flow before Tax -100000 36740 40240 44000
Tax Amount 10% -2074 -2424 -2800
Net cash flow After -100000 34666 37816 41200
Discount Factor 15% 1 0.8696 0.7561 0.6575

Discounted Cash flows -100000 30144 28594 27090

NPV Value 43224

IRR 30.3%

Tax Calculation
Net Cash flow before Tax 36740 40240 44000
Capital Allowence or Taxable Depreciation Capital ALL. = Depreciation -16000 -16000 -16000
Taxable Profit 20740 24240 28000
Tax Amount 10% 2074 2424 2800

Net cash flow After -100000 34666 37816 41200

Discount Factor 20% 1 0.8333 0.6944 0.5787
Discounted Cash flows -100000 28888 26261 23843

NPV at 20% 26262

Net cash flow After -100000 34666 37816 41200

Discount Factor 25% 1 0.8000 0.6400 0.5120
Discounted Cash flows -100000 27733 24202 21094

NPV at 25% 12287

Net cash flow After -100000 34666 37816 41200

Discount Factor 30% 1 0.7692 0.5917 0.4552
Discounted Cash flows -100000 26666 22376 18753

NPV at 30% 649

Net cash flow After -100000 34666 37816 41200
Discount Factor 31% 1 0.7634 0.5827 0.4448
Discounted Cash flows -100000 26463 22036 18327

NPV at 31% -1443

Profitability Index Present Value of future Cash Flow/ Initial Investment

143224
 Year 04 Year 05
12,500 13,000
000
Year 04 Year 05
2315 2431
12.5 13
28,941 31,603

12.5 13
3.75 3.9
8000 8000
30000 31200

This will not consider for Evaluation. Why, This is Sunk Cost

480 480

360 360

420 420

2000 2000

9000 11000

Year 04 Year 05

20000

28,941 31,603
30,000 31,200
 -480 -480
-360 -360
-420 -420
-2000 -2000
-9000 -11000
46681 68543
-3068 -3254
43613 65289
0.5718 0.4972
If profitability index is more one, We will select the Projects and
24936 32460 143224 1.4322 also when we we have morethan one project we will use highest
PI to select the Best Project

Cost 100000
A. Depre. -80000
BV 20000
Dis. Price 20000
46681 48543 0
-16000 -16000
30681 32543
3068 3254

43612.5625 65288.846
0.4823 0.4019
21032 26238

43612.5625 65288.846
0.4096 0.3277
17864 21394

43612.5625 65288.846
0.3501 0.2693
15270 17584
 43612.5625 65288.846
0.3396 0.2592
14809 16923

itial Investment
e, We will select the Projects and
an one project we will use highest
he Best Project
 Initial Cost Discounted Net Cash Fows
Project A 75000 84000
Project B 60000 69000
Project C 90000 102000
NPV Profitability Index Rank
9000 84000/75000 1.1200 3
9000 69000/60000 1.1500 1
12000 102000/90000 1.1333 2