Name Tutorial 2

ID

An oil company is planning to install an offshore production facility. The estimated investment, annual expenses and
revenues are shown in TABLE Q2. The company uses a minimum rate of return

(MARR) @ interest of 10 % per year in evaluating the investment proposal

a). Calculate annual net cash flow & cumulative net cash flow
b). Estimate the discounted payback period
c). Determine the internal rate of return (IRR)

Year 0 1 2 3 4 5
Investment ($ million) 100 40
Revenue ($ million) 80 80 80 80 80
Expenses ($million) 10 10 10 10 10

solution
a)
Year 0 1 2 3 4 5
Investment ($ million) 100 40
Revenue ($ million) 80 80 80 80 80
Expenses ($million) 10 10 10 10 10
MARR @ interest Rate 0.1 0.1 0.1 0.1 0.1 0.1
Discounting Factor 1.000 0.909 0.826 0.751 0.683 0.621
Net casf flow (NFC) -100.00 27.27 57.85 52.59 47.81 43.46
Cum. Net Casf Flow -100.00 -72.73 -14.88 37.72 85.53 128.99

interpolation
b) payback period 2.28 years

c) IRR by trial & error method

Year 0 1 2 3 4 5
Investment ($ million) 100 40
Revenue ($ million) 80 80 80 80 80
Expenses ($million) 10 10 10 10 10
assumed interest Rate 0.1 0.1 0.1 0.1 0.1 0.1
Discounting Factor 1.000 0.909 0.826 0.751 0.683 0.621
Net casf flow (NFC) -100.00 27.27 57.85 52.59 47.81 43.46
NPV @ Cum. Net Cash
Flow -100.00 -72.73 -14.88 37.72 85.53 128.99

Year 0 1 2 3 4 5
Investment ($ million) 100 40
Revenue ($ million) 80 80 80 80 80
Expenses ($million) 10 10 10 10 10
assumed interest Rate 0.2 0.2 0.2 0.2 0.2 0.2
Discounting Factor 1.000 0.833 0.694 0.579 0.482 0.402
Net casf flow (NFC) -100.00 25.00 48.61 40.51 33.76 28.13
NPV @ Cum. Net Cash
Flow -100.00 -75.00 -26.39 14.12 47.88 76.01

Year 0 1 2 3 4 5
Investment ($ million) 100 40
Revenue ($ million) 80 80 80 80 80
Expenses ($million) 10 10 10 10 10
assumed interest Rate 0.3 0.3 0.3 0.3 0.3 0.3
Discounting Factor 1.000 0.769 0.592 0.455 0.350 0.269
Net casf flow (NFC) -100.00 23.08 41.42 31.86 24.51 18.85
NPV @ Cum. Net Cash
Flow -100.00 -76.92 -35.50 -3.64 20.87 39.72

Year 0 1 2 3 4 5
Investment ($ million) 100 40
Revenue ($ million) 80 80 80 80 80
Expenses ($million) 10 10 10 10 10
assumed interest Rate 0.4 0.4 0.4 0.4 0.4 0.4
Discounting Factor 1.000 0.714 0.510 0.364 0.260 0.186
Net casf flow (NFC) -100.00 21.43 35.71 25.51 18.22 13.02
NPV @ Cum. Net Cash
Flow -100.00 -78.57 -42.86 -17.35 0.87 13.89

Year 0 1 2 3 4 5
Investment ($ million) 100 40
Revenue ($ million) 80 80 80 80 80
Expenses ($million) 10 10 10 10 10
assumed interest Rate 0.45 0.45 0.45 0.45 0.45 0.45
Discounting Factor 1.000 0.690 0.476 0.328 0.226 0.156
Net casf flow (NFC) -100.00 20.69 33.29 22.96 15.84 10.92
NPV @ Cum. Net Cash
Flow -100.00 -79.31 -46.02 -23.06 -7.22 3.70

Year 0 1 2 3 4 5
Investment ($ million) 100 40
Revenue ($ million) 80 80 80 80 80
Expenses ($million) 10 10 10 10 10
assumed interest Rate 0.5 0.5 0.5 0.5 0.5 0.5
Discounting Factor 1.000 0.667 0.444 0.296 0.198 0.132
Net casf flow (NFC) -100.00 20.00 31.11 20.74 13.83 9.22
NPV @ Cum. Net Cash
Flow -100.00 -80.00 -48.89 -28.15 -14.32 -5.10

IRR calculated through interpolation

IRR: 47.1018166995 %

Sheet 01
Name Tutorial 2
ID

An oil company is planning to install an offshore production facility. The estimated investment,
annual
(MARR)expenses and
@ interest of revenues are shown
25 %inper
TABLE
yearQ2.
in The company
evaluating theuses a minimum
investment rate of return
proposal

a). Calculate annual net cash flow & cumulative net cash flow
b). Estimate the discounted payback period
c). Determine the internal rate of return (IRR)

Year 0 1 2 3 4 5
Investment ($ million) 100 40
Revenue ($ million) 80 80 80 80 80
Expenses ($million) 10 10 10 10 10

solution
a)
Year 0 1 2 3 4 5
Investment ($ million) 100 40
Revenue ($ million) 80 80 80 80 80
Expenses ($million) 10 10 10 10 10
MARR @ interest Rate 0.25 0.25 0.25 0.25 0.25 0.25
Discounting Factor 1.000 0.800 0.640 0.512 0.410 0.328
Net casf flow (NFC) -100.00 24.00 44.80 35.84 28.67 22.94
Cum. Net Casf Flow -100.00 -76.00 -31.20 4.64 33.31 56.25

interpolation
b) payback period 2.87 years

c) IRR by trial & error method

Year 0 1 2 3 4 5
Investment ($ million) 100 40
Revenue ($ million) 80 80 80 80 80
Expenses ($million) 10 10 10 10 10
assumed interest Rate 0.25 0.25 0.25 0.25 0.25 0.25
Discounting Factor 1.000 0.800 0.640 0.512 0.410 0.328
Net casf flow (NFC) -100.00 24.00 44.80 35.84 28.67 22.94
NPV @ Cum. Net Cash
Flow -100.00 -76.00 -31.20 4.64 33.31 56.25

Year 0 1 2 3 4 5
Investment ($ million) 100 40
Revenue ($ million) 80 80 80 80 80
Expenses ($million) 10 10 10 10 10

Sheet 02
Name Tutorial 2
ID

assumed interest Rate 0.35 0.35 0.35 0.35 0.35 0.35

Discounting Factor 1.000 0.741 0.549 0.406 0.301 0.223
Net casf flow (NFC) -100.00 22.22 38.41 28.45 21.07 15.61
NPV @ Cum. Net Cash
Flow -100.00 -77.78 -39.37 -10.92 10.16 25.77

Year 0 1 2 3 4 5
Investment ($ million) 100 40
Revenue ($ million) 80 80 80 80 80
Expenses ($million) 10 10 10 10 10
assumed interest Rate 0.45 0.45 0.45 0.45 0.45 0.45
Discounting Factor 1.000 0.690 0.476 0.328 0.226 0.156
Net casf flow (NFC) -100.00 20.69 33.29 22.96 15.84 10.92
NPV @ Cum. Net Cash
Flow -100.00 -79.31 -46.02 -23.06 -7.22 3.70

Year 0 1 2 3 4 5
Investment ($ million) 100 40
Revenue ($ million) 80 80 80 80 80
Expenses ($million) 10 10 10 10 10
assumed interest Rate 0.5 0.5 0.5 0.5 0.5 0.5
Discounting Factor 1.000 0.667 0.444 0.296 0.198 0.132
Net casf flow (NFC) -100.00 20.00 31.11 20.74 13.83 9.22
NPV @ Cum. Net Cash
Flow -100.00 -80.00 -48.89 -28.15 -14.32 -5.10

IRR calculated through

interpolation
IRR: 47.102 %

Sheet 02
Name Tutorial 2
ID

An oil company is planning to install an offshore production facility. The estimated investment,
annual
(MARR)expenses and
@ interest of revenues are shown in TABLE
10 % per year inQ2. The company
evaluating uses a minimum
the investment rate of
proposal
return

a). Calculate annual net cash flow & cumulative net cash flow
b). Estimate the discounted payback period
c). Determine the internal rate of return (IRR)

Year 0 1 2 3 4 5
Investment ($ million) 200 40
Revenue ($ million) 80 80 80 80 80
Expenses ($million) 10 10 10 10 10

solution
a)
Year 0 1 2 3 4 5
Investment ($ million) 200 40
Revenue ($ million) 80 80 80 80 80
Expenses ($million) 10 10 10 10 10
MARR @ interest Rate 0.1 0.1 0.1 0.1 0.1 0.1
Discounting Factor 1.000 0.909 0.826 0.751 0.683 0.621
Net casf flow (NFC) -200.00 27.27 57.85 52.59 47.81 43.46
Cum. Net Casf Flow -200.00 -172.73 -114.88 -62.28 -14.47 28.99

interpolation
b) payback period 4.33 years

c) IRR by trial & error method

Year 0 1 2 3 4 5
Investment ($ million) 200 40
Revenue ($ million) 80 80 80 80 80

Expenses ($million) 10 10 10 10 10

assumed interest Rate

0.1 0.1 0.1 0.1 0.1 0.1
Discounting Factor 1.000 0.909 0.826 0.751 0.683 0.621

Net casf flow (NFC)

-200.00 27.27 57.85 52.59 47.81 43.46

NPV @ Cum. Net Cash

Flow
-200.00 -172.73 -114.88 -62.28 -14.47 28.99

Sheet 03
Name Tutorial 2
ID

Year 0 1 2 3 4 5
Investment ($ million) 200 40
Revenue ($ million) 80 80 80 80 80

Expenses ($million) 10 10 10 10 10

assumed interest Rate

0.15 0.15 0.15 0.15 0.15 0.15
Discounting Factor 1.000 0.870 0.756 0.658 0.572 0.497

Net casf flow (NFC)

-200.00 26.09 52.93 46.03 40.02 34.80
NPV @ Cum. Net Cash
Flow -200.00 -173.91 -120.98 -74.96 -34.93 -0.13

IRR calculated through

interpolation
IRR: 15 %

Sheet 03
Name Tutorial 2
ID

An oil company is planning to install an offshore production facility. The estimated investment,
annual
(MARR)expenses and
@ interest of revenues are10shown
% perinyear
TABLE Q2. The company
in evaluating uses a minimum
the investment proposal rate of return

a). Calculate annual net cash flow & cumulative net cash flow
b). Estimate the discounted payback period
c). Determine the internal rate of return (IRR)

Year 0 1 2 3 4 5
Investment ($ million) 100 50
Revenue ($ million) 80 80 80 80 80
Expenses ($million) 10 10 10 10 10

solution
a)
Year 0 1 2 3 4 5
Investment ($ million) 100 50
Revenue ($ million) 80 80 80 80 80

Expenses ($million) 10 10 10 10 10
MARR @ interest
Rate 0.1 0.1 0.1 0.1 0.1 0.1
Discounting Factor 1.000 0.909 0.826 0.751 0.683 0.621
Net casf flow (NFC) -100.00 18.18 57.85 52.59 47.81 43.46
Cum. Net Casf Flow -100.00 -81.82 -23.97 28.63 76.44 119.90

interpolation
b) payback period
2.46 years

c) IRR by trial & error method

Year 0 1 2 3 4 5
Investment ($ million) 100 50
Revenue ($ million) 80 80 80 80 80
Expenses ($million) 10 10 10 10 10
assumed interest Rate
0.1 0.1 0.1 0.1 0.1 0.1
Discounting Factor 1.000 0.909 0.826 0.751 0.683 0.621
Net casf flow (NFC) -100.00 18.18 57.85 52.59 47.81 43.46
NPV @ Cum. Net
Cash Flow -100.00 -81.82 -23.97 28.63 76.44 119.90

Year 0 1 2 3 4 5
Investment ($ million) 100 50

Sheet 04
Name Tutorial 2
ID

Revenue ($ million) 80 80 80 80 80
Expenses ($million) 10 10 10 10 10
assumed interest Rate
0.2 0.2 0.2 0.2 0.2 0.2
Discounting Factor 1.000 0.833 0.694 0.579 0.482 0.402
Net casf flow (NFC) -100.00 16.67 48.61 40.51 33.76 28.13
NPV @ Cum. Net
Cash Flow -100.00 -83.33 -34.72 5.79 39.54 67.68

Year 0 1 2 3 4 5
Investment ($ million) 100 50
Revenue ($ million) 80 80 80 80 80
Expenses ($million) 10 10 10 10 10
assumed interest Rate
0.3 0.3 0.3 0.3 0.3 0.3
Discounting Factor 1.000 0.769 0.592 0.455 0.350 0.269
Net casf flow (NFC) -100.00 15.38 41.42 31.86 24.51 18.85
NPV @ Cum. Net
Cash Flow -100.00 -84.62 -43.20 -11.33 13.18 32.03

Year 0 1 2 3 4 5
Investment ($ million) 100 50
Revenue ($ million) 80 80 80 80 80

Expenses ($million) 10 10 10 10 10

assumed interest Rate

0.4 0.4 0.4 0.4 0.4 0.4
Discounting Factor 1.000 0.714 0.510 0.364 0.260 0.186

Net casf flow (NFC)

-100.00 14.29 35.71 25.51 18.22 13.02
NPV @ Cum. Net
Cash Flow -100.00 -85.71 -50.00 -24.49 -6.27 6.75

Year 0 1 2 3 4 5
Investment ($ million) 100 50
Revenue ($ million) 80 80 80 80 80
Expenses ($million) 10 10 10 10 10

assumed interest Rate

0.45 0.45 0.45 0.45 0.45 0.45
Discounting Factor 1.000 0.690 0.476 0.328 0.226 0.156

Net casf flow (NFC)

-100.00 13.79 33.29 22.96 15.84 10.92

Sheet 04
Name Tutorial 2
ID

NPV @ Cum. Net

Cash Flow
-100.00 -86.21 -52.91 -29.95 -14.12 -3.20

IRR calculated through

interpolation
IRR: 43.39 %

Sheet 04
Name Tutorial 2
ID

An oil company is planning to install an offshore production facility. The estimated investment,
annual
(MARR)expenses and
@ interest of revenues are10shown
% perin TABLE
year Q2. The company
in evaluating uses a minimum
the investment proposal rate of

a). Calculate annual net cash flow & cumulative net cash flow
b). Estimate the discounted payback period
c). Determine the internal rate of return (IRR)

Year 0 1 2 3 4 5
Investment ($ million) 150 75
Revenue ($ million) 80 80 80 80 80
Expenses ($million) 10 10 10 10 10

solution
a)
Year 0 1 2 3 4 5
Investment ($ million) 150 75
Revenue ($ million) 80 80 80 80 80
Expenses ($million) 10 10 10 10 10
MARR @ interest
Rate 0.1 0.1 0.1 0.1 0.1 0.1
Discounting Factor 1.000 0.909 0.826 0.751 0.683 0.621
Net casf flow (NFC) -150.00 -4.55 57.85 52.59 47.81 43.46
Cum. Net Casf Flow -150.00 -154.55 -96.69 -44.10 3.71 47.17

interpolation
b) payback period 3.92 years

c) IRR by trial & error method

Year 0 1 2 3 4 5
Investment ($ million) 150 75
Revenue ($ million) 80 80 80 80 80
Expenses ($million) 10 10 10 10 10
assumed interest Rate
0.1 0.1 0.1 0.1 0.1 0.1
Discounting Factor 1.000 0.909 0.826 0.751 0.683 0.621
Net casf flow (NFC) -150.00 -4.55 57.85 52.59 47.81 43.46
NPV @ Cum. Net
Cash Flow -150.00 -154.55 -96.69 -44.10 3.71 47.17

Year 0 1 2 3 4 5
Investment ($ million) 150 75

Sheet 05
Name Tutorial 2
ID

Revenue ($ million) 80 80 80 80 80
Expenses ($million) 10 10 10 10 10
assumed interest Rate
0.2 0.2 0.2 0.2 0.2 0.2
Discounting Factor 1.000 0.833 0.694 0.579 0.482 0.402
Net casf flow (NFC) -150.00 -4.17 48.61 40.51 33.76 28.13
NPV @ Cum. Net
Cash Flow -150.00 -154.17 -105.56 -65.05 -31.29 -3.16

IRR calculated through

interpolation
IRR: ### %

Sheet 05
Name Tutorial 2
ID

An oil company is planning to install an offshore production facility. The estimated investment,
annual
(MARR)expenses and
@ interest of revenues are10
shown
% perinyear
TABLE Q2. The company
in evaluating uses a minimum
the investment proposal rate of return

a). Calculate annual net cash flow & cumulative net cash flow
b). Estimate the discounted payback period
c). Determine the internal rate of return (IRR)

Year 0 1 2 3 4 5
Investment ($ million) 100 40

Revenue ($ million) 90 90 90 90 90

Expenses ($million) 10 10 10 10 10

solution
a)
Year 0 1 2 3 4 5
Investment ($ million) 100 40
Revenue ($ million) 90 90 90 90 90
Expenses ($million) 10 10 10 10 10

MARR @ interest Rate

0.1 0.1 0.1 0.1 0.1 0.1
Discounting Factor 1.000 0.909 0.826 0.751 0.683 0.621
Net casf flow (NFC) ### 36.36 66.12 60.11 54.64 49.67
Cum. Net Casf Flow ### -63.64 2.48 62.58 117.23 166.90

interpolation
b) payback period 1.96 years

c) IRR by trial & error method

Year 0 1 2 3 4 5
Investment ($ million) 100 40
Revenue ($ million) 90 90 90 90 90
Expenses ($million) 10 10 10 10 10
assumed interest Rate 0.1 0.1 0.1 0.1 0.1 0.1
Discounting Factor 1.000 0.909 0.826 0.751 0.683 0.621
Net casf flow (NFC) ### 36.36 66.12 60.11 54.64 49.67
NPV @ Cum. Net Cash
Flow ### -63.64 2.48 62.58 117.23 166.90

Year 0 1 2 3 4 5
Investment ($ million) 100 40

Sheet 06
Name Tutorial 2
ID

Revenue ($ million) 90 90 90 90 90
Expenses ($million) 10 10 10 10 10
assumed interest Rate 0.2 0.2 0.2 0.2 0.2 0.2
Discounting Factor 1.000 0.833 0.694 0.579 0.482 0.402
Net casf flow (NFC) ### 33.33 55.56 46.30 38.58 32.15
NPV @ Cum. Net Cash
Flow ### -66.67 -11.11 35.19 73.77 105.92

Year 0 1 2 3 4 5
Investment ($ million) 100 40
Revenue ($ million) 90 90 90 90 90
Expenses ($million) 10 10 10 10 10
assumed interest Rate 0.3 0.3 0.3 0.3 0.3 0.3
Discounting Factor 1.000 0.769 0.592 0.455 0.350 0.269
Net casf flow (NFC) ### 30.77 47.34 36.41 28.01 21.55
NPV @ Cum. Net Cash
Flow ### -69.23 -21.89 14.52 42.53 64.08

Year 0 1 2 3 4 5
Investment ($ million) 100 40
Revenue ($ million) 90 90 90 90 90
Expenses ($million) 10 10 10 10 10
assumed interest Rate 0.4 0.4 0.4 0.4 0.4 0.4
Discounting Factor 1.000 0.714 0.510 0.364 0.260 0.186
Net casf flow (NFC) ### 28.57 40.82 29.15 20.82 14.87
NPV @ Cum. Net Cash
Flow ### -71.43 -30.61 -1.46 19.37 34.24

Year 0 1 2 3 4 5
Investment ($ million) 100 40
Revenue ($ million) 90 90 90 90 90
Expenses ($million) 10 10 10 10 10
assumed interest Rate 0.5 0.5 0.5 0.5 0.5 0.5
Discounting Factor 1.000 0.667 0.444 0.296 0.198 0.132
Net casf flow (NFC) ### 26.67 35.56 23.70 15.80 10.53
NPV @ Cum. Net Cash
Flow ### -73.33 -37.78 -14.07 1.73 12.26

Year 0 1 2 3 4 5
Investment ($ million) 100 40
Revenue ($ million) 90 90 90 90 90
Expenses ($million) 10 10 10 10 10
assumed interest Rate 0.6 0.6 0.6 0.6 0.6 0.6
Discounting Factor 1.000 0.625 0.391 0.244 0.153 0.095

Sheet 06
Name Tutorial 2
ID

Net casf flow (NFC) ### 25.00 31.25 19.53 12.21 7.63
NPV @ Cum. Net Cash
Flow ### -75.00 -43.75 -24.22 -12.01 -4.38

IRR calculated through

interpolation
IRR: 57 %

Sheet 06
Name Tutorial 2
ID

An oil company is planning to install an offshore production facility. The estimated investment,
annual
(MARR)expenses and
@ interest of revenues are10shown
% perinyear
TABLE Q2. The company
in evaluating uses a minimum
the investment proposal rate of

a). Calculate annual net cash flow & cumulative net cash flow
b). Estimate the discounted payback period
c). Determine the internal rate of return (IRR)

Year 0 1 2 3 4 5
Investment ($ million) 100 40
Revenue ($ million) 75 75 75 75 75
Expenses ($million) 10 10 10 10 10

solution
a)
Year 0 1 2 3 4 5
Investment ($ million) 100 40
Revenue ($ million) 75 75 75 75 75
Expenses ($million) 10 10 10 10 10
MARR @ interest
Rate 0.1 0.1 0.1 0.1 0.1 0.1
Discounting Factor 1.000 0.909 0.826 0.751 0.683 0.621
Net casf flow (NFC) -100.00 22.73 53.72 48.84 44.40 40.36
Cum. Net Casf Flow -100.00 -77.27 -23.55 25.28 69.68 110.04

interpolation
b) payback period 2.48 years

c) IRR by trial & error method

Year 0 1 2 3 4 5
Investment ($ million) 100 40
Revenue ($ million) 75 75 75 75 75
Expenses ($million) 10 10 10 10 10
assumed interest Rate
0.1 0.1 0.1 0.1 0.1 0.1
Discounting Factor 1.000 0.909 0.826 0.751 0.683 0.621
Net casf flow (NFC) -100.00 22.73 53.72 48.84 44.40 40.36
NPV @ Cum. Net
Cash Flow -100.00 -77.27 -23.55 25.28 69.68 110.04

Year 0 1 2 3 4 5
Investment ($ million) 100 40

Sheet 07
Name Tutorial 2
ID

Revenue ($ million) 75 75 75 75 75
Expenses ($million) 10 10 10 10 10
assumed interest Rate
0.2 0.2 0.2 0.2 0.2 0.2
Discounting Factor 1.000 0.833 0.694 0.579 0.482 0.402
Net casf flow (NFC) -100.00 20.83 45.14 37.62 31.35 26.12
NPV @ Cum. Net
Cash Flow -100.00 -79.17 -34.03 3.59 34.93 61.06

Year 0 1 2 3 4 5
Investment ($ million) 100 40
Revenue ($ million) 75 75 75 75 75
Expenses ($million) 10 10 10 10 10
assumed interest Rate
0.3 0.3 0.3 0.3 0.3 0.3
Discounting Factor 1.000 0.769 0.592 0.455 0.350 0.269
Net casf flow (NFC) -100.00 19.23 38.46 29.59 22.76 17.51
NPV @ Cum. Net
Cash Flow -100.00 -80.77 -42.31 -12.72 10.04 27.54

Year 0 1 2 3 4 5
Investment ($ million) 100 40
Revenue ($ million) 75 75 75 75 75
Expenses ($million) 10 10 10 10 10
assumed interest Rate
0.4 0.4 0.4 0.4 0.4 0.4
Discounting Factor 1.000 0.714 0.510 0.364 0.260 0.186
Net casf flow (NFC) -100.00 17.86 33.16 23.69 16.92 12.09
NPV @ Cum. Net
Cash Flow -100.00 -82.14 -48.98 -25.29 -8.37 3.71

Year 0 1 2 3 4 5
Investment ($ million) 100 40
Revenue ($ million) 75 75 75 75 75
Expenses ($million) 10 10 10 10 10
assumed interest Rate
0.45 0.45 0.45 0.45 0.45 0.45
Discounting Factor 1.000 0.690 0.476 0.328 0.226 0.156
Net casf flow (NFC) -100.00 17.24 30.92 21.32 14.70 10.14
NPV @ Cum. Net
Cash Flow -100.00 -82.76 -51.84 -30.52 -15.82 -5.68

IRR calculated through

interpolation

Sheet 07
Name Tutorial 2
ID

IRR: 42 %

Sheet 07
Name Tutorial 2
ID

An oil company is planning to install an offshore production facility. The estimated investment, annual
expenses
(MARR) @and revenues
interest of are shown in10TABLE
% perQ2. The
year company uses
in evaluating the ainvestment
minimum proposal
rate of return

a). Calculate annual net cash flow & cumulative net cash flow
b). Estimate the discounted payback period
c). Determine the internal rate of return (IRR)

Year 0 1 2 3 4 5
Investment ($ million) 100 40

Revenue ($ million) 65 70 75 80 85
Expenses ($million) 10 10 10 10 10

solution
a)
Year 0 1 2 3 4 5
Investment ($ million) 100 40
Revenue ($ million) 65 70 75 80 85
Expenses ($million) 10 10 10 10 10

MARR @ interest Rate

0.1 0.1 0.1 0.1 0.1 0.1
Discounting Factor 1.000 0.909 0.826 0.751 0.683 0.621
Net casf flow (NFC) -100.00 13.64 49.59 48.84 47.81 46.57
Cum. Net Casf Flow -100.00 -86.36 -36.78 12.06 59.87 106.44

interpolation
b) payback period 2.75 years

c) IRR by trial & error method

Year 0 1 2 3 4 5
Investment ($ million) 100 40
Revenue ($ million) 65 70 75 80 85
Expenses ($million) 10 10 10 10 10
assumed interest Rate
0.1 0.1 0.1 0.1 0.1 0.1
Discounting Factor 1.000 0.909 0.826 0.751 0.683 0.621
Net casf flow (NFC) -100.00 13.64 49.59 48.84 47.81 46.57
NPV @ Cum. Net
Cash Flow -100.00 -86.36 -36.78 12.06 59.87 106.44

Year 0 1 2 3 4 5
Investment ($ million) 100 40

Sheet 08
Name Tutorial 2
ID

Revenue ($ million) 65 70 75 80 85
Expenses ($million) 10 10 10 10 10
assumed interest Rate
0.2 0.2 0.2 0.2 0.2 0.2
Discounting Factor 1.000 0.833 0.694 0.579 0.482 0.402
Net casf flow (NFC) -100.00 12.50 41.67 37.62 33.76 30.14
NPV @ Cum. Net
Cash Flow -100.00 -87.50 -45.83 -8.22 25.54 55.68

Year 0 1 2 3 4 5
Investment ($ million) 100 40
Revenue ($ million) 65 70 75 80 85
Expenses ($million) 10 10 10 10 10
assumed interest Rate
0.3 0.3 0.3 0.3 0.3 0.3
Discounting Factor 1.000 0.769 0.592 0.455 0.350 0.269
Net casf flow (NFC) -100.00 11.54 35.50 29.59 24.51 20.20
NPV @ Cum. Net
Cash Flow -100.00 -88.46 -52.96 -23.37 1.14 21.34

Year 0 1 2 3 4 5
Investment ($ million) 100 40
Revenue ($ million) 65 70 75 80 85
Expenses ($million) 10 10 10 10 10
assumed interest Rate
0.4 0.4 0.4 0.4 0.4 0.4
Discounting Factor 1.000 0.714 0.510 0.364 0.260 0.186
Net casf flow (NFC) -100.00 10.71 30.61 23.69 18.22 13.95
NPV @ Cum. Net
Cash Flow -100.00 -89.29 -58.67 -34.99 -16.76 -2.82

IRR calculated through

interpolation
IRR: 38.833 %

Sheet 08
Name Tutorial 2
ID

An oil company is planning to install an offshore production facility. The estimated investment,
annual
(MARR)expenses and
@ interest of revenues are shown in TABLE
10 % per year inQ2. The company
evaluating uses a minimum
the investment proposalrate of return

a). Calculate annual net cash flow & cumulative net cash flow
b). Estimate the discounted payback period
c). Determine the internal rate of return (IRR)

Year 0 1 2 3 4 5
Investment ($ million) 100 40

Revenue ($ million) 80 80 80 80 80
Expenses ($million) 15 15 15 15 15

solution
a)
Year 0 1 2 3 4 5
Investment ($ million) 100 40
Revenue ($ million) 80 80 80 80 80
Expenses ($million) 15 15 15 15 15
MARR @ interest Rate
0.1 0.1 0.1 0.1 0.1 0.1
Discounting Factor 1.000 0.909 0.826 0.751 0.683 0.621
Net casf flow (NFC) -100.00 22.73 53.72 48.84 44.40 40.36
Cum. Net Casf Flow -100.00 -77.27 -23.55 25.28 69.68 110.04

interpolation
b) payback period
2.48 years

c) IRR by trial & error method

Year 0 1 2 3 4 5
Investment ($ million) 100 40
Revenue ($ million) 80 80 80 80 80
Expenses ($million) 15 15 15 15 15
assumed interest Rate
0.1 0.1 0.1 0.1 0.1 0.1
Discounting Factor 1.000 0.909 0.826 0.751 0.683 0.621
Net casf flow (NFC) -100.00 22.73 53.72 48.84 44.40 40.36
NPV @ Cum. Net
Cash Flow -100.00 -77.27 -23.55 25.28 69.68 110.04

Year 0 1 2 3 4 5
Investment ($ million) 100 40
Revenue ($ million) 80 80 80 80 80

Sheet 09
Name Tutorial 2
ID

Expenses ($million) 15 15 15 15 15
assumed interest Rate
0.2 0.2 0.2 0.2 0.2 0.2
Discounting Factor 1.000 0.833 0.694 0.579 0.482 0.402
Net casf flow (NFC) -100.00 20.83 45.14 37.62 31.35 26.12
NPV @ Cum. Net
Cash Flow -100.00 -79.17 -34.03 3.59 34.93 61.06

Year 0 1 2 3 4 5
Investment ($ million) 100 40
Revenue ($ million) 80 80 80 80 80
Expenses ($million) 15 15 15 15 15
assumed interest Rate
0.3 0.3 0.3 0.3 0.3 0.3
Discounting Factor 1.000 0.769 0.592 0.455 0.350 0.269
Net casf flow (NFC) -100.00 19.23 38.46 29.59 22.76 17.51
NPV @ Cum. Net
Cash Flow -100.00 -80.77 -42.31 -12.72 10.04 27.54

Year 0 1 2 3 4 5
Investment ($ million) 100 40
Revenue ($ million) 80 80 80 80 80
Expenses ($million) 15 15 15 15 15
assumed interest Rate
0.4 0.4 0.4 0.4 0.4 0.4
Discounting Factor 1.000 0.714 0.510 0.364 0.260 0.186
Net casf flow (NFC) -100.00 17.86 33.16 23.69 16.92 12.09
NPV @ Cum. Net
Cash Flow -100.00 -82.14 -48.98 -25.29 -8.37 3.71

Year 0 1 2 3 4 5
Investment ($ million) 100 40
Revenue ($ million) 80 80 80 80 80
Expenses ($million) 15 15 15 15 15
assumed interest Rate
0.45 0.45 0.45 0.45 0.45 0.45
Discounting Factor 1.000 0.690 0.476 0.328 0.226 0.156
Net casf flow (NFC) -100.00 17.24 30.92 21.32 14.70 10.14
NPV @ Cum. Net
Cash Flow -100.00 -82.76 -51.84 -30.52 -15.82 -5.68

IRR calculated through

interpolation
IRR: 41.978 %

Sheet 09
Name Tutorial 2
ID

An oil company is planning to install an offshore production facility. The estimated investment,
annual
(MARR)expenses and
@ interest of revenues are shown in TABLE
10 % per year inQ2. The company
evaluating uses a minimum
the investment rate of return
proposal

a). Calculate annual net cash flow & cumulative net cash flow
b). Estimate the discounted payback period
c). Determine the internal rate of return (IRR)

Year 0 1 2 3 4 5
Investment ($ million) 100 40
Revenue ($ million) 80 80 80 80 80
Expenses ($million) 10 15 18 20 25

solution
a)
Year 0 1 2 3 4 5
Investment ($ million) 100 40
Revenue ($ million) 80 80 80 80 80
Expenses ($million) 10 15 18 20 25
MARR @ interest Rate
0.1 0.1 0.1 0.1 0.1 0.1
Discounting Factor 1.000 0.909 0.826 0.751 0.683 0.621
Net casf flow (NFC) -100.00 27.27 53.72 46.58 40.98 34.15
Cum. Net Casf Flow -100.00 -72.73 -19.01 27.57 68.55 102.70

interpolation
b) payback period 2.41 years

c) IRR by trial & error method

Year 0 1 2 3 4 5
Investment ($ million) 100 40
Revenue ($ million) 80 80 80 80 80
Expenses ($million) 10 15 18 20 25
assumed interest Rate
0.1 0.1 0.1 0.1 0.1 0.1
Discounting Factor 1.000 0.909 0.826 0.751 0.683 0.621
Net casf flow (NFC) -100.00 27.27 53.72 46.58 40.98 34.15
NPV @ Cum. Net
Cash Flow -100.00 -72.73 -19.01 27.57 68.55 102.70

Year 0 1 2 3 4 5
Investment ($ million) 100 40
Revenue ($ million) 80 80 80 80 80
Expenses ($million) 10 15 18 20 25

Sheet 10
Name Tutorial 2
ID

assumed interest Rate

0.2 0.2 0.2 0.2 0.2 0.2
Discounting Factor 1.000 0.833 0.694 0.579 0.482 0.402
Net casf flow (NFC) -100.00 25.00 45.14 35.88 28.94 22.10
NPV @ Cum. Net
Cash Flow -100.00 -75.00 -29.86 6.02 34.95 57.06

Year 0 1 2 3 4 5
Investment ($ million) 100 40
Revenue ($ million) 80 80 80 80 80
Expenses ($million) 10 15 18 20 25
assumed interest Rate
0.3 0.3 0.3 0.3 0.3 0.3
Discounting Factor 1.000 0.769 0.592 0.455 0.350 0.269
Net casf flow (NFC) -100.00 23.08 38.46 28.22 21.01 14.81
NPV @ Cum. Net
Cash Flow -100.00 -76.92 -38.46 -10.24 10.77 25.58

Year 0 1 2 3 4 5
Investment ($ million) 100 40
Revenue ($ million) 80 80 80 80 80
Expenses ($million) 10 15 18 20 25
assumed interest Rate
0.4 0.4 0.4 0.4 0.4 0.4
Discounting Factor 1.000 0.714 0.510 0.364 0.260 0.186
Net casf flow (NFC) -100.00 21.43 33.16 22.59 15.62 10.23
NPV @ Cum. Net
Cash Flow -100.00 -78.57 -45.41 -22.81 -7.19 3.03

Year 0 1 2 3 4 5
Investment ($ million) 100 40
Revenue ($ million) 80 80 80 80 80
Expenses ($million) 10 15 18 20 25
assumed interest Rate
0.45 0.45 0.45 0.45 0.45 0.45
Discounting Factor 1.000 0.690 0.476 0.328 0.226 0.156
Net casf flow (NFC) -100.00 20.69 30.92 20.34 13.57 8.58
NPV @ Cum. Net
Cash Flow -100.00 -79.31 -48.39 -28.06 -14.48 -5.90

IRR calculated through

interpolation
IRR: 41.70 %

Sheet 10
Name Tutorial 2
ID

An oil company is planning to install an offshore production facility. The estimated investment,
annual
(MARR)expenses and
@ interest of revenues are15shown
% perin TABLE
year Q2. The company
in evaluating uses a minimum
the investment proposal rate of

a). Calculate annual net cash flow & cumulative net cash flow
b). Estimate the discounted payback period
c). Determine the internal rate of return (IRR)

Year 0 1 2 3 4 5
Investment ($ million) 100 40
Revenue ($ million) 80 80 80 80 80
Expenses ($million) 10 10 10 10 10

solution
a)
Year 0 1 2 3 4 5
Investment ($ million) 100 40
Revenue ($ million) 80 80 80 80 80
Expenses ($million) 10 10 10 10 10

MARR @ interest Rate

0.15 0.15 0.15 0.15 0.15 0.15

Discounting Factor
1.000 0.870 0.756 0.658 0.572 0.497
Net casf flow (NFC) ### 26.09 52.93 46.03 40.02 34.80

Cum. Net Casf Flow

### -73.91 -20.98 25.04 65.07 99.87

interpolation
b) payback period 2.46 years

c) IRR by trial & error method

Year 0 1 2 3 4 5
Investment ($ million) 100 40
Revenue ($ million) 80 80 80 80 80
Expenses ($million) 10 10 10 10 10
assumed interest Rate
0.15 0.15 0.15 0.15 0.15 0.15
Discounting Factor 1.000 0.870 0.756 0.658 0.572 0.497
Net casf flow (NFC) ### 26.09 52.93 46.03 40.02 34.80
NPV @ Cum. Net
Cash Flow ### -73.91 -20.98 25.04 65.07 99.87

Year 0 1 2 3 4 5

Sheet 11
Name Tutorial 2
ID

Investment ($ million) 100 40

Revenue ($ million) 80 80 80 80 80
Expenses ($million) 10 10 10 10 10
assumed interest Rate
0.2 0.2 0.2 0.2 0.2 0.2
Discounting Factor 1.000 0.833 0.694 0.579 0.482 0.402
Net casf flow (NFC) ### 25.00 48.61 40.51 33.76 28.13
NPV @ Cum. Net
Cash Flow ### -75.00 -26.39 14.12 47.88 76.01

Year 0 1 2 3 4 5
Investment ($ million) 100 40
Revenue ($ million) 80 80 80 80 80
Expenses ($million) 10 10 10 10 10
assumed interest Rate
0.3 0.3 0.3 0.3 0.3 0.3
Discounting Factor 1.000 0.769 0.592 0.455 0.350 0.269
Net casf flow (NFC) ### 23.08 41.42 31.86 24.51 18.85
NPV @ Cum. Net
Cash Flow ### -76.92 -35.50 -3.64 20.87 39.72

Year 0 1 2 3 4 5
Investment ($ million) 100 40
Revenue ($ million) 80 80 80 80 80
Expenses ($million) 10 10 10 10 10
assumed interest Rate
0.4 0.4 0.4 0.4 0.4 0.4
Discounting Factor 1.000 0.714 0.510 0.364 0.260 0.186
Net casf flow (NFC) ### 21.43 35.71 25.51 18.22 13.02
NPV @ Cum. Net
Cash Flow ### -78.57 -42.86 -17.35 0.87 13.89

Year 0 1 2 3 4 5
Investment ($ million) 100 40
Revenue ($ million) 80 80 80 80 80
Expenses ($million) 10 10 10 10 10
assumed interest Rate
0.45 0.45 0.45 0.45 0.45 0.45
Discounting Factor 1.000 0.690 0.476 0.328 0.226 0.156
Net casf flow (NFC) ### 20.69 33.29 22.96 15.84 10.92
NPV @ Cum. Net
Cash Flow ### -79.31 -46.02 -23.06 -7.22 3.70

Year 0 1 2 3 4 5

Sheet 11
Name Tutorial 2
ID

Investment ($ million) 100 40

Revenue ($ million) 80 80 80 80 80
Expenses ($million) 10 10 10 10 10
assumed interest Rate
0.5 0.5 0.5 0.5 0.5 0.5
Discounting Factor 1.000 0.667 0.444 0.296 0.198 0.132
Net casf flow (NFC) ### 20.00 31.11 20.74 13.83 9.22
NPV @ Cum. Net
Cash Flow ### -80.00 -48.89 -28.15 -14.32 -5.10

IRR calculated through

interpolation
IRR: 47.1 %

Sheet 11
Name Tutorial 2
ID

An oil company is planning to install an offshore production facility. The estimated investment,
annual
(MARR)expenses and
@ interest of revenues are shown
5 % perinyear
TABLE Q2. The company
in evaluating uses a minimum
the investment proposalrate of return

a). Calculate annual net cash flow & cumulative net cash flow
b). Estimate the discounted payback period
c). Determine the internal rate of return (IRR)

Year 0 1 2 3 4 5
Investment ($ million) 150 40
Revenue ($ million) 80 80 80 80 80
Expenses ($million) 10 10 10 10 10

solution
a)
Year 0 1 2 3 4 5
Investment ($ million) 150 40
Revenue ($ million) 80 80 80 80 80
Expenses ($million) 10 10 10 10 10
MARR @ interest Rate
0.05 0.05 0.05 0.05 0.05 0.05
Discounting Factor 1.000 0.952 0.907 0.864 0.823 0.784
Net casf flow (NFC) -150.00 28.57 63.49 60.47 57.59 54.85
Cum. Net Casf Flow -150.00 -121.43 -57.94 2.53 60.12 114.97

interpolation
b) payback period 2.96 years

c) IRR by trial & error method

Year 0 1 2 3 4 5
Investment ($ million) 150 40
Revenue ($ million) 80 80 80 80 80
Expenses ($million) 10 10 10 10 10
assumed interest Rate
0.05 0.05 0.05 0.05 0.05 0.05
Discounting Factor 1.000 0.952 0.907 0.864 0.823 0.784
Net casf flow (NFC) -150.00 28.57 63.49 60.47 57.59 54.85
NPV @ Cum. Net
Cash Flow -150.00 -121.43 -57.94 2.53 60.12 114.97

Year 0 1 2 3 4 5

Sheet 12
Name Tutorial 2
ID

Investment ($ million) 150 40

Revenue ($ million) 80 80 80 80 80
Expenses ($million) 10 10 10 10 10
assumed interest Rate
0.2 0.2 0.2 0.2 0.2 0.2
Discounting Factor 1.000 0.833 0.694 0.579 0.482 0.402
Net casf flow (NFC) -150.00 25.00 48.61 40.51 33.76 28.13
NPV @ Cum. Net
Cash Flow -150.00 -125.00 -76.39 -35.88 -2.12 26.01

Year 0 1 2 3 4 5
Investment ($ million) 150 40
Revenue ($ million) 80 80 80 80 80
Expenses ($million) 10 10 10 10 10
assumed interest Rate
0.3 0.3 0.3 0.3 0.3 0.3
Discounting Factor 1.000 0.769 0.592 0.455 0.350 0.269
Net casf flow (NFC) -150.00 23.08 41.42 31.86 24.51 18.85
NPV @ Cum. Net
Cash Flow -150.00 -126.92 -85.50 -53.64 -29.13 -10.28

IRR calculated through

interpolation
IRR: 27.17 %

Sheet 12
Name Tutorial 2
ID

An oil company is planning to install an offshore production facility. The estimated investment,
annual
(MARR)expenses and
@ interest of revenues are 10
shown
% perin year
TABLEin Q2. The company
evaluating uses a minimum
the investment proposalrate of return

a). Calculate annual net cash flow & cumulative net cash flow
b). Estimate the discounted payback period
c). Determine the internal rate of return (IRR)

Year 0 1 2 3 4 5
Investment ($ million) 100 40 20
Revenue ($ million) 80 80 80 80 80
Expenses ($million) 10 10 10 10 10

solution
a)
Year 0 1 2 3 4 5
Investment ($ million) 100 40 20
Revenue ($ million) 80 80 80 80 80
Expenses ($million) 10 10 10 10 10
MARR @ interest Rate
0.1 0.1 0.1 0.1 0.1 0.1
Discounting Factor 1.000 0.909 0.826 0.751 0.683 0.621
Net casf flow (NFC) -100.00 27.27 41.32 52.59 47.81 43.46
Cum. Net Casf Flow -100.00 -72.73 -31.40 21.19 69.00 112.46

interpolation
b) payback period 2.60 years

c) IRR by trial & error method

Year 0 1 2 3 4 5
Investment ($ million) 100 40 20
Revenue ($ million) 80 80 80 80 80
Expenses ($million) 10 10 10 10 10
assumed interest Rate
0.1 0.1 0.1 0.1 0.1 0.1
Discounting Factor 1.000 0.909 0.826 0.751 0.683 0.621
Net casf flow (NFC) -100.00 27.27 41.32 52.59 47.81 43.46
NPV @ Cum. Net
Cash Flow -100.00 -72.73 -31.40 21.19 69.00 112.46

Year 0 1 2 3 4 5
Investment ($ million) 100 40 20
Revenue ($ million) 80 80 80 80 80
Expenses ($million) 10 10 10 10 10

Sheet 13
Name Tutorial 2
ID

assumed interest Rate

0.2 0.2 0.2 0.2 0.2 0.2
Discounting Factor 1.000 0.833 0.694 0.579 0.482 0.402
Net casf flow (NFC) -100.00 25.00 34.72 40.51 33.76 28.13
NPV @ Cum. Net
Cash Flow -100.00 -75.00 -40.28 0.23 33.99 62.12

Year 0 1 2 3 4 5
Investment ($ million) 100 40 20
Revenue ($ million) 80 80 80 80 80
Expenses ($million) 10 10 10 10 10
assumed interest Rate
0.3 0.3 0.3 0.3 0.3 0.3
Discounting Factor 1.000 0.769 0.592 0.455 0.350 0.269
Net casf flow (NFC) -100.00 23.08 29.59 31.86 24.51 18.85
NPV @ Cum. Net
Cash Flow -100.00 -76.92 -47.34 -15.48 9.03 27.89

Year 0 1 2 3 4 5
Investment ($ million) 100 40 20
Revenue ($ million) 80 80 80 80 80
Expenses ($million) 10 10 10 10 10
assumed interest Rate
0.4 0.4 0.4 0.4 0.4 0.4
Discounting Factor 1.000 0.714 0.510 0.364 0.260 0.186
Net casf flow (NFC) -100.00 21.43 25.51 25.51 18.22 13.02
NPV @ Cum. Net
Cash Flow -100.00 -78.57 -53.06 -27.55 -9.33 3.69

Year 0 1 2 3 4 5
Investment ($ million) 100 40 20
Revenue ($ million) 80 80 80 80 80
Expenses ($million) 10 10 10 10 10
assumed interest Rate
0.45 0.45 0.45 0.45 0.45 0.45
Discounting Factor 1.000 0.690 0.476 0.328 0.226 0.156
Net casf flow (NFC) -100.00 20.69 23.78 22.96 15.84 10.92
NPV @ Cum. Net
Cash Flow -100.00 -79.31 -55.53 -32.57 -16.73 -5.81

IRR calculated through

interpolation
IRR: 41.94 %

Sheet 13
Name Tutorial 2
ID

An oil company is planning to install an offshore production facility. The estimated

investment, annualof
(MARR) @ interest expenses and10revenues are in
% per year shown in TABLE
evaluating theQ2. The company
investment uses a
proposal

a). Calculate annual net cash flow & cumulative net cash flow
b). Estimate the discounted payback period
c). Determine the internal rate of return (IRR)

Year 0 1 2 3 4 5
Investment ($ million) 100 40
Revenue ($ million) 90 80 80 80 80
Expenses ($million) 20 10 10 10 10

solution
a)
Year 0 1 2 3 4 5
Investment ($ million) 100 40
Revenue ($ million) 90 80 80 80 80
Expenses ($million) 20 10 10 10 10
MARR @ interest Rate
0.1 0.1 0.1 0.1 0.1 0.1
Discounting Factor 1.000 0.909 0.826 0.751 0.683 0.621
Net casf flow (NFC) ### 27.27 57.85 52.59 47.81 43.46
Cum. Net Casf Flow ### -72.73 -14.88 37.72 85.53 128.99

interpolation
b) payback period 2.28 years

c) IRR by trial & error method

Year 0 1 2 3 4 5
Investment ($ million) 100 40
Revenue ($ million) 90 80 80 80 80
Expenses ($million) 20 10 10 10 10
assumed interest Rate
0.1 0.1 0.1 0.1 0.1 0.1
Discounting Factor 1.000 0.909 0.826 0.751 0.683 0.621
Net casf flow (NFC) ### 27.27 57.85 52.59 47.81 43.46
NPV @ Cum. Net
Cash Flow ### -72.73 -14.88 37.72 85.53 128.99

Year 0 1 2 3 4 5
Investment ($ million) 100 40

Sheet 14
Name Tutorial 2
ID

Revenue ($ million) 90 80 80 80 80
Expenses ($million) 20 10 10 10 10
assumed interest Rate
0.2 0.2 0.2 0.2 0.2 0.2
Discounting Factor 1.000 0.833 0.694 0.579 0.482 0.402
Net casf flow (NFC) ### 25.00 48.61 40.51 33.76 28.13
NPV @ Cum. Net
Cash Flow ### -75.00 -26.39 14.12 47.88 76.01

Year 0 1 2 3 4 5
Investment ($ million) 100 40
Revenue ($ million) 90 80 80 80 80
Expenses ($million) 20 10 10 10 10
assumed interest Rate
0.3 0.3 0.3 0.3 0.3 0.3
Discounting Factor 1.000 0.769 0.592 0.455 0.350 0.269
Net casf flow (NFC) ### 23.08 41.42 31.86 24.51 18.85
NPV @ Cum. Net
Cash Flow ### -76.92 -35.50 -3.64 20.87 39.72

Year 0 1 2 3 4 5
Investment ($ million) 100 40
Revenue ($ million) 90 80 80 80 80
Expenses ($million) 20 10 10 10 10
assumed interest Rate
0.4 0.4 0.4 0.4 0.4 0.4
Discounting Factor 1.000 0.714 0.510 0.364 0.260 0.186
Net casf flow (NFC) ### 21.43 35.71 25.51 18.22 13.02
NPV @ Cum. Net
Cash Flow ### -78.57 -42.86 -17.35 0.87 13.89

Year 0 1 2 3 4 5
Investment ($ million) 100 40
Revenue ($ million) 90 80 80 80 80
Expenses ($million) 20 10 10 10 10
assumed interest Rate
0.45 0.45 0.45 0.45 0.45 0.45
Discounting Factor 1.000 0.690 0.476 0.328 0.226 0.156
Net casf flow (NFC) ### 20.69 33.29 22.96 15.84 10.92
NPV @ Cum. Net
Cash Flow ### -79.31 -46.02 -23.06 -7.22 3.70

Year 0 1 2 3 4 5
Investment ($ million) 100 40

Sheet 14
Name Tutorial 2
ID

Revenue ($ million) 90 80 80 80 80
Expenses ($million) 20 10 10 10 10
assumed interest Rate
0.5 0.5 0.5 0.5 0.5 0.5
Discounting Factor 1.000 0.667 0.444 0.296 0.198 0.132
Net casf flow (NFC) ### 20.00 31.11 20.74 13.83 9.22
NPV @ Cum. Net
Cash Flow ### -80.00 -48.89 -28.15 -14.32 -5.10

IRR calculated through

interpolation
IRR: 47.10 %

Sheet 14
Name Tutorial 2
ID

An oil company is planning to install an offshore production facility. The estimated investment,
annual
(MARR)expenses and
@ interest of revenues are shown in TABLE
20 % per year inQ2. The company
evaluating uses a minimum
the investment rate of
proposal

a). Calculate annual net cash flow & cumulative net cash flow
b). Estimate the discounted payback period
c). Determine the internal rate of return (IRR)

Year 0 1 2 3 4 5
Investment ($ million) 100 40
Revenue ($ million) 90 90 80 80 80
Expenses ($million) 10 10 10 18 18

solution
a)
Year 0 1 2 3 4 5
Investment ($ million) 100 40
Revenue ($ million) 90 90 80 80 80
Expenses ($million) 10 10 10 18 18
MARR @ interest Rate
0.2 0.2 0.2 0.2 0.2 0.2
Discounting Factor 1.000 0.833 0.694 0.579 0.482 0.402
Net casf flow (NFC) -100.00 33.33 55.56 40.51 29.90 24.92
Cum. Net Casf Flow -100.00 -66.67 -11.11 29.40 59.30 84.21

interpolation
b) payback period 2.27 years

c) IRR by trial & error method

Year 0 1 2 3 4 5
Investment ($ million) 100 40
Revenue ($ million) 90 90 80 80 80
Expenses ($million) 10 10 10 18 18
assumed interest Rate 0.2 0.2 0.2 0.2 0.2 0.2
Discounting Factor 1.000 0.833 0.694 0.579 0.482 0.402
Net casf flow (NFC) -100.00 33.33 55.56 40.51 29.90 24.92
NPV @ Cum. Net Cash
Flow -100.00 -66.67 -11.11 29.40 59.30 84.21

Year 0 1 2 3 4 5
Investment ($ million) 100 40
Revenue ($ million) 90 90 80 80 80
Expenses ($million) 10 10 10 18 18
assumed interest Rate 0.2 0.2 0.2 0.2 0.2 0.2

Sheet 15
Name Tutorial 2
ID

Discounting Factor 1.000 0.833 0.694 0.579 0.482 0.402

Net casf flow (NFC) -100.00 33.33 55.56 40.51 29.90 24.92
NPV @ Cum. Net Cash
Flow -100.00 -66.67 -11.11 29.40 59.30 84.21

Year 0 1 2 3 4 5
Investment ($ million) 100 40
Revenue ($ million) 90 90 80 80 80
Expenses ($million) 10 10 10 18 18
assumed interest Rate 0.3 0.3 0.3 0.3 0.3 0.3
Discounting Factor 1.000 0.769 0.592 0.455 0.350 0.269
Net casf flow (NFC) -100.00 30.77 47.34 31.86 21.71 16.70
NPV @ Cum. Net Cash
Flow -100.00 -69.23 -21.89 9.97 31.68 48.37

Year 0 1 2 3 4 5
Investment ($ million) 100 40
Revenue ($ million) 90 90 80 80 80
Expenses ($million) 10 10 10 18 18
assumed interest Rate 0.4 0.4 0.4 0.4 0.4 0.4
Discounting Factor 1.000 0.714 0.510 0.364 0.260 0.186
Net casf flow (NFC) -100.00 28.57 40.82 25.51 16.14 11.53
NPV @ Cum. Net Cash
Flow -100.00 -71.43 -30.61 -5.10 11.04 22.57

Year 0 1 2 3 4 5
Investment ($ million) 100 40
Revenue ($ million) 90 90 80 80 80
Expenses ($million) 10 10 10 18 18
assumed interest Rate 0.5 0.5 0.5 0.5 0.5 0.5
Discounting Factor 1.000 0.667 0.444 0.296 0.198 0.132
Net casf flow (NFC) -100.00 26.67 35.56 20.74 12.25 8.16
NPV @ Cum. Net Cash
Flow -100.00 -73.33 -37.78 -17.04 -4.79 3.37

Year 0 1 2 3 4 5
Investment ($ million) 100 40
Revenue ($ million) 90 90 80 80 80
Expenses ($million) 10 10 10 18 18
assumed interest Rate 0.55 0.55 0.55 0.55 0.55 0.55
Discounting Factor 1.000 0.645 0.416 0.269 0.173 0.112
Net casf flow (NFC) -100.00 25.81 33.30 18.80 10.74 6.93
NPV @ Cum. Net Cash
Flow -100.00 -74.19 -40.89 -22.10 -11.36 -4.43

Sheet 15
Name Tutorial 2
ID

IRR calculated through

interpolation
IRR: 52.163 %

Sheet 15