Name: Harshita Jain Roll No.

: 401502004

CLASS EXERCISE 1: PROJECT MANAGEMENT

ANS.1. A) NPV OF THE TWO PROJECTS

YEAR RATE PROJECT A (lakh) PROJECT B(lakh) NPV A NPV B

0 0.1 -1000 -1600 -1000 -1600
1 0.1 -1200 200 -1090.91 181.8182
2 0.1 -600 400 -495.868 330.5785
3 0.14 -250 600 -168.743 404.9829
4 0.14 2000 900 1184.161 532.8722
5 0.14 4000 1000 2077.475 519.3687
NPV TOTAL 506.1155 369.6205

NPV A>NPV B

IRR OF TWO PROJECTS

YEAR RATE PROJECT A (lakh) PROJECT B(lakh)

0 0.1 -1000 -1600
1 0.1 -1200 200
2 0.1 -600 400
3 0.14 -250 600
4 0.14 2000 900
5 0.14 4000 1000
IRR 20% 21%

IRR A<IRR B

Ans. 1 B) Comparing NPV of the two projects, we choose the project with higher NPV. So, NPV of
project A has higher as compared to NPV of project B. But when comparing IRR of the projects then we
choose project with higher IRR. Therefore project B is chosen.
NPV is an absolute measure, it ranks a project adding more money value higher regardless of initial
investment required that is it results in the money value that a project will produce. While IRR generates
the percentage return that the project is expected to create. In my opinion NPV is a better factor to
decide which project to choose as IRR inherently assumes that cash flow can be reinvested at the
internal rate of return. This can be a problem as there is no guarantee that equal opportunities will be
available in future.
Therefore I choose project A to invest.