You are fresh out of college and exploring options to start your venture.

You plan to start a bike accessory shop

You plan to take Rs 3 lakhs from a bank at 9% p.a. and Rs 2 lakhs as a friendly loan from your parents. Your pa

You want to run this business for 5 years and after that you want to pursue higher education. Here is your proj

Year Revenue Cost

1 450,000 350,000
2 550,000 450,000
3 650,000 480,000
4 750,000 550,000
5 850,000 650,000

Evaluate the venture using Net Present Value (NPV), Internal Rate of Return (IRR) and Payback Period.
o start a bike accessory shop that needs an initial setup cost of Rs 5 lakhs.
from your parents. Your parents have been saving that money for your future in a mutual fund that was earning 14% p.a

education. Here is your projection of revenue and cost for the next 5 years.

and Payback Period.

nd that was earning 14% p.a.
Source Amount Cost Weight
Bank loan 300,000 9% 60%
Friendly loan 200,000 14% 40%

Discount rate 11.00%

Initial Investment 500,000
Discount Rate 11.00%

Year 1 2 3 4 5
Revenue 450,000 550,000 650,000 750,000 850,000
Costs 350,000 450,000 480,000 550,000 650,000
Net CF 100,000 100,000 170,000 200,000 200,000
Discount factor 0.90 0.81 0.73 0.66 0.59
PV 90,090 81,162 124,303 131,746 118,690

NPV 45,991
Initial Investment 500,000
IRR 14.12%

Year 1 2 3 4 5
Revenue 450,000 550,000 650,000 750,000 850,000
Costs 350,000 450,000 480,000 550,000 650,000
Net CF 100,000 100,000 170,000 200,000 200,000
Discount factor 0.88 0.77 0.67 0.59 0.52
PV 87,625 76,781 114,374 117,906 103,315

NPV 0
Initial Investment 500,000

Year 1 2 3 4 5
Revenue 450,000 550,000 650,000 750,000 850,000
Costs 350,000 450,000 480,000 550,000 650,000
Net CF 100,000 100,000 170,000 200,000 200,000
Cumulative CF 100,000 200,000 370,000 570,000 770,000

Payback Period 3.65

4,444,444,444,444,440,000,000,000