yr.

0

horizon

1

2

3

4

30000

40000

40000

15000

the period for which asset will live

-100000

1 how many years will it take for the investment to come back ?
cumulative flows

30000

70000

110000

125000

choose the year which overakes the investment
come to the previous year
ascertain what remains to be captured
flows in the next year
which means we need

payback

30000
40000
30000/40000

2 Yrs 9 months

of year 3
to cover the 100000 invest
0.75
2 years
we can recoup the investm

interest rate

to cover the 100000 investment
9 months
9 months
we can recoup the investment

13%

investment
yearly inflows
horizon
find payback period

horizon
-90000

90000
23000
6 years
?

yr. 0
1
2
3
4
5
6

cumulative flows
23000
23000
23000
23000
23000
23000

23000
46000
69000
92000 year 4
115000
138000

advantages of this method

amount

disadvantages of this method

-10000
a
1
2
3
4
5
6

a
b

b
40000
50000
20000
0
0

2.5
3.4

40000
90000
110000
110000
110000

30000
25000
30000
40000
50000

30000
55000
85000
125000
175000
175000

disadvantages of this method .

67 13% .0 -100000 1 30000 2 40000 3 40000 4 15000 interest rate 1 discount all inflows at the interest rate 2 cumulate the discounted fig.01 9199.67 31325.781 2 26548.87 27722. 3 find payback 1 26548.

38 78960.44 17697.48 10478.0 1 2 3 4 5 6 7 -90000 23000 23000 23000 23000 23000 23000 23000 at end of year 6 to be covered dis flows in yr 7 period in yr 7 discounted payback flows 20175.09 years .85 11945.75 15524.34 13617.44 37873.01 89439.658 cmlt 20175.86 89439.35 560.investment 90000 yearly inflows 23000 horizon 7 years Discounted payback ? rate 14% yr.49 9191.01 0.19 53397.060995 6.54 67015.6471 98631.35 98631.

87 27722.53 NPV diff between the sum of inflows and the investment 13% .01 9199.781 13% 10855.1 30000 -100000 2 40000 3 40000 4 15000 5 20000 interest rate 26548.2 105651.67 PV of inflows 31325.5 Net present value method NPV method PV of inflows to be compared with outlay(invesetment) IF PV of inflows is greater than outlay accept IF PV of inflows is less than outlay reject investment PV of inflows so accepted!! 0 -100000 1 30000 2 40000 3 40000 -100000 105651.5 4 15000 5 20000 interest rate excel's NPV 105651.

02 for B . 14. 36.88 for A 30000 25000 30000 40000 50000 55000 Rs. 136.12 -Rs.223.259.740.02 Rs. 85.223.invst -100000 A 1 2 3 4 5 6 pv of inflows NPV B 40000 50000 20000 0 0 Rs.

13 18903.NPV you need the interest rate -100000 30000 called as interest rate hurdle rate discounting rate cost of capital 25000 30000 40000 1 25000 2 25000 3 25000 50000 55000 return the project yr0 50000 0 21739.91 57080.59 16437.63 15% .

investment 1 2 3 4 5 6 7 8 9 10 11 12 Rs.000.00 80000 80000 80000 80000 80000 80000 80000 80000 80000 80000 80000 80000 80000 160000 240000 320000 400000 480000 560000 this year is payback year 640000 720000 800000 880000 960000 . 560.

1197 31273.67287 34714.58598 16720.867 195497.942 603903.655 295671.226 519388.218 575269.3105 52698.566 590332.821 442963.47793 47476. Payback 72072.028 376975.79466 58495.561 496521.60931 cumulative 72072.34773 15063.37634 13570.701 411689.632 558549.761 338443.80000 yearly inflows extended period 1 2 3 4 5 6 7 8 9 10 11 12 80000 80000 80000 80000 80000 80000 80000 80000 80000 80000 80000 80000 disc.552 During the life of the discounted payb at the end of 14 still remainin portion in year 15 discounted payback .803 471138.10624 42771.26589 13 14 15 16 17 80000 80000 80000 80000 80000 20601.66514 22867.7583 25382.98172 28174.14044 18559.26689 38532.492 539989.07207 64929.177 248195.072 137001.

2 1450 0.08676 14.09 years .life of the discounted payback cannot be achieved 558549.

00 afte 2 years to be covered portion in year payback 2 3 Rs.000.000.000.00 cumulative 1 Rs.00 Rs. 385.00 Rs.00 Rs.000.2987 2.000.0 -Rs. 520. 885.000.000.00 Rs.00 0. 520. 885.000. 1.30 years .270. 1.00 Rs.000. 365. 115.00 Rs.000.

find npv of the problem 2 Rs.51 NPV function . -40.611.

1.8 336443.12 Rs.34 63126 57913.1 242979 291723.89 48744. 68807.58 only option d is viable 10000 10000 10000 10000 .76 53131.4 c d 500000 500000 500000 500000 500000 500000 500000 500000 a b c d -34888.97 cumult.3 189847.05 41027.5 415111.9 377471.85 44720.34 131933.57 -256315.98 -16180.57 37639.a investment 1 2 3 4 5 6 7 8 75000 75000 75000 75000 75000 75000 75000 75000 b 86000 86000 86000 86000 86000 86000 86000 450000 disc 68807.358.

7.876.A B Rs.902.74 3000000 3000000 3000000 3000000 3000000 3000000 3000000 .

189.9. 385.553.50% A 580000 580000 580000 580000 680000 Rs.86 B 445000 445000 445000 445000 645000 Rs. 290. 68.51 .715.94 C 325000 325000 325000 325000 475000 Rs.

0 -50000 50000 5000 50000 1 5000 2 5000 3 55000 5000/(1+r) 5000/(1+r)^2 5000/(1+r)^3 4545.231405 41322.31405 9 10% .4545 4132.investment pmt value at the end of 3 years yr.

209.258. 190.51% Rs.81 13.60% NPV IRR .A B INITIAL INVESTMENT -5000000 -4850000 1 2 3 4 5 1380000 1450000 1460000 1524000 1400000 1256000 1256000 1312000 1312000 2060000 Rs.200.29 13.

97% .36% 20.01 2. -97. 48.K L -500 150 175 200 NPV IRR -350 125 175 225 Rs.00 Rs.

31.67 Rs.s 12 t -538 126 476 206 NPV IRR Payback -526 200 300 200 Rs.71% . 97.83% 15.67 21.

0 1 2 3 4 5 B .independent projects NPV+ve IRR>coc NPV -ve irr<COC mutually exclusive A yr.

22 Rs.415.819.23 Rs.24 -Rs.931.047. 58. 43.931.70 19.96 Rs.910.878. 202. 18.000. 20. 9.00 Rs. 179.044. 31.54 -Rs.53 Rs.73 Rs. 50. 226.00 -Rs.369.868. 0.67 Rs. 100.403.146.345. 41.000.858.49 Rs.961.32 Rs.00 1st point attack to IRR The crossover point Rs.000. 136.00 Rs.033.16 Rs. 90.314.441. 165.951. 3.27 Rs. 77. 45.245.000. 133. 200.82 Rs.073.484. 150. 149.38 Rs. 91.00 Rs. 9.106. 78.43 Rs.691.92 Rs.78 Rs.68 Rs. 27. 182.922.42 Rs.076.42 Rs.08 Rs.56 -Rs.20 -Rs. 200.00 5% 6% . 96. 157. 202.69 Rs.24 cost of capital 5% in mutually exclusive projects if coc is < cross o go by the NPV decision if cost>crossover rate both NPV and IRR will agree with each other Rs.42 Rs. 60.000. 11.68 -Rs. 250.441.93 Rs. 50. 182.54 -Rs. 30.222. 104.42 15.582. 100. 53.000.00 Rs. 65.76% NPV A NPVB Rs. 115.01% Rs.911.349.24 Rs.393.16% Project A year 0 1 2 3 4 5 6 4% 5% 6% 7% 8% 9% 10% 11% 12% 13% 14% 15% 16% 17% 18% 19% 20% Project B -450000 197000 147000 97000 97000 97000 97000 -590000 145000 154000 268000 142000 118000 99000 NPV IRR Rs.90 Rs.70 Rs.616.666.86 Rs.784. 118.00 4% -Rs.33 Rs.000.

rojects if coc is < cross over rate there will be conflict agree with each other Chart Title 6% 7% 8% 9% 10% 11% NPV A 12% NPVB 13% 14% 15% 16% 17% 18% 19% 20% .

000.414. 225.00 4 Rs.000.000.690.000.132.00 Rs.00 3 Rs.000.00 6 Rs.52 indifferent instalment . 225. 225.A B 1 Rs.000.39 Rs. 1.000.00 7 Rs.000.00 5 Rs.00 Rs. 225. 225. 198. 1. 225.000. 225.00 2 Rs.

IRR NO IRR as there is no reciept .

45.905% 2nd point of attack to IRR scale difference is not understood by IRR .1 2 3 4 5 6 NPV IRR Project K Project L -1500000 -150000 450000 45000 450000 45000 450000 45000 450000 45000 450000 45000 450000 45000 Rs.31 Rs.905% 19.986.867. 459.73 19.

understood by IRR .

832.coc 19% 6% beginning payment -2000000 installment 450000 450000 500000 500000 500000 600000 600000 600000 600000 700000 Rs. 1.095% NPV IRR for 19% for 6 % .958.095% 22.62 Rs.70 22.985. 237.

00% .-100000 120000 20.

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 -2000000 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 .

46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 .

93 94 95 96 97 98 99 100 101 102 103 104 105 106 107 108 109 110 111 112 113 114 115 116 117 118 119 120 121 122 123 124 125 126 127 128 129 130 131 132 133 134 135 136 137 138 139 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 .

140 141 142 143 144 145 146 147 148 149 150 151 152 153 154 155 156 157 158 159 160 161 162 163 164 165 166 167 168 169 170 171 172 173 174 175 176 177 178 179 180 181 182 183 184 185 186 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 .

187 188 189 190 191 192 193 194 195 196 197 198 199 200 201 202 203 204 205 206 207 208 209 210 211 212 213 214 215 216 217 218 219 220 221 222 223 224 225 226 227 228 229 230 231 232 233 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 21010 .

94% 0.234 235 236 237 238 239 240 21010 21010 21010 21010 21010 21010 21010 0.94% monthly rate .

-3000 23.13% 1 0 2 0 3 5600 .

-407.75% NPV will be 0 1.450384 Rs.-2000000 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 200000 200000 200000 200000 200000 200000 200000 200000 200000 200000 200000 200000 200000 200000 200000 200000 200000 200000 200000 200000 per quarter 11% 7.334.38 .

08 112710.17 244472.82 727194.90 463678.75 347810.47% 22.85 707507.40 405130.29 524980.57 768576.33 969725.82 60303.42 120000000% 100000000% 80000000% 60000000% 40000000% 20000000% -20000000% .28 223261.42 539919.36 488784.75 263112.78 78614.81 656547.53 649142.14 899501.30 832515.72 148137.53 295671.03 961207.83 589209.06 -20911.12 801363.75 392842.56 184962.39 18871.R IRR rate S -1750000 766111 471667 311236 478252 478252 478252 -1345000 330551 551068 659000 365920 304074 255113 19.43 349177.41 439797.34 593327.65 148492.82 103477.46% NPV R 2% 3% 4% 5% 6% 7% 8% 9% 10% 11% 12% 13% 14% 15% 16% 17% 18% 19% 20% NPV S 1047398.42 304598.93 195453.11 879285.

Chart Title 120000000% 100000000% 80000000% 60000000% 40000000% 20000000% 0% -20000000% 1 2 3 4 5 rate 6 7 8 9 10 11 12 13 14 15 16 17 18 19 NPV R NPV S .