a

cost of capi 12%

PVF disc cash cum cash cum disc cash

year cash flows @12% flows flows flows
0 -35000 1 -35000 -35000 -35000 payback period 7 years
1 5000 0.8929 4464.5 -30000 -30535.5 disc payback per > 15 years
2 5000 0.7972 3986 -25000 -26549.5
3 5000 0.7118 3559 -20000 -22990.5 NPV -945.5
4 5000 0.6355 3177.5 -15000 -19813
5 5000 0.5674 2837 -10000 -16976 IRR 11.49%
6 5000 0.5066 2533 -5000 -14443
7 5000 0.4523 2261.5 0 -12181.5
8 5000 0.4039 2019.5 5000 -10162
9 5000 0.3606 1803 10000 -8359 SINCE NPV IS -VE, IRR IS
LESS THAN COST OF
10 5000 0.322 1610 15000 -6749 CAPITAL AND DISC
11 5000 0.2875 1437.5 20000 -5311.5 PAYBACK PERIOD IS
12 5000 0.2567 1283.5 25000 -4028 GREATER THAN THE LIFE
OF THE MACHINE, WE
13 5000 0.2292 1146 30000 -2882 DON’T PURCHASE THE
14 5000 0.2046 1023 35000 -1859 MACHINE
15 5000 0.1827 913.5 40000 -945.5

NPV -945.5

IRR 11.49%

PVF disc cash

year cash flows @12% flows
0 -35000 1 -35000
1 5000 0.8969 4484.5 NPV 1.5
2 5000 0.8045 4022.5
3 5000 0.7216 3608
4 5000 0.6472 3236
5 5000 0.5805 2902.5
6 5000 0.5207 2603.5
7 5000 0.467 2335
8 5000 0.4189 2094.5
9 5000 0.3757 1878.5
10 5000 0.337 1685
11 5000 0.3023 1511.5
12 5000 0.2711 1355.5
13 5000 0.2432 1216
14 5000 0.2181 1090.5
15 5000 0.1956 978
B
COST OF M 35000
NET CASH 4500 C

R 12%
PAYBACK P 7.777778 YEARS

NPV `=PV OF CASH INFLOWS IN PERPETUITY - INITIAL CASH OUTFLOW

PV OF PER 37500 `=C/R

NPV 2500

IRR RATE AT WHICH PV OF CASHFLOWS IN PERPETUITY = INITIAL INVESTMENT

PV OF PER 35000
C 4500
R ??
R 0.128571
IRR 12.86%

SINCE NPV IS +VE,

IRR IS GREATER
THAN COST OF
CAPITAL , WE CAN
PURCHASE THE
MACHINE
C

YEAR CASH INFLO REINVESTMENT@20%

NET CASH PVF @12%DISC CF CUM CF CUM DISC CF
PAYBACK
1 5000 1000 4000 0.8929 3571.6 4000 3571.6 PERIOD
2 5200 1040 4160 0.7972 3316.352 8160 6887.952
3 5408 1081.6 4326.4 0.7118 3079.532 12486.4 9967.484 EXACT PAYBA
4 5624.32 1124.864 4499.456 0.6355 2859.404 16985.86 12826.89
5 5849.2928 1169.859 4679.434 0.5674 2655.111 21665.29 15482 DISC PAYBACK
6 6083.26451 1216.653 4866.612 0.5066 2465.425 26531.9 17947.42
7 6326.59509 1265.319 5061.276 0.4523 2289.215 31593.18 20236.64 EXACT DISC P
8 6579.6589 1315.932 5263.727 0.4039 2126.019 36856.91 22362.66
9 6842.84525 1368.569 5474.276 0.3606 1974.024 42331.18 24336.68
10 7116.55906 1423.312 5693.247 0.322 1833.226 48024.43 26169.91
11 7401.22142 1480.244 5920.977 0.2875 1702.281 53945.41 27872.19
12 7697.27028 1539.454 6157.816 0.2567 1580.711 60103.22 29452.9
13 8005.16109 1601.032 6404.129 0.2292 1467.826 66507.35 30920.73
14 8325.36754 1665.074 6660.294 0.2046 1362.696 73167.64 32283.42
15 8658.38224 1731.676 6926.706 0.1827 1265.509 80094.35 33548.93
16 9004.71753 1800.944 7203.774 0.1631 1174.936 87298.12 34723.87
17 9364.90623 1872.981 7491.925 0.1456 1090.824 94790.05 35814.69
18 9739.50248 1947.9 7791.602 0.13 1012.908 102581.7 36827.6

NPV `=PV OF GROWING PERPETUITY - INITIAL INVESTMENT

R 12% C 4000
G 4%

PV OF GRO 50000
NPV 15000

IRR RATE AT WHICH PV OF GROWING PERPETUITY IS EQUAL TO THE INITIAL INVESTMENT

C 4000
REQUIRED 35000

R-G 11.43%
R 15.43%

SINCE NPV IS POSITIVE AND IRR IS GREATER THAN 12%, WE PURCHASE THE MACHINE
 IT IS BETWEENS YEARS 7 AND 8 SINCE THE INITIAL INVESTMENT OF 35000$ IS TAKEN OUT
BETWEEN THESE YEARS

7.647226 YEARS
IT IS BETWEENS YEARS 16 AND 17 SINCE THE INITIAL INVESTMENT OF 35000$ IS TAKEN OUT
BETWEEN THESE YEARS ON CONSIDERING THE DISC CF

16.25314 YEARS
AT 210 UNITS

YEAR T PRE-PRODNPRODN COSALES REV NET CASH FLOW

1967 0 -100 -100

1968 1 -200 -200

1969 2 -200 -200

1970 3 -200 140 -60

1971 4 -200 -490 140 -550

1972 5 -490 560 70

1973 6 -490 560 70

1974 7 -490 560 70

1975 8 -490 560 70
1976 9 -490 420 -70
1977 10 420 420

NOTE

TOTAL
PRODN
FOR 6
YEARS 210
PRODN
/YR 35

COST PER
PLANE 14 MILLION
ANNUAL
PRODN
COST 490 MILLION

REVENUE
IN YEAR 5 560 `=35*16

DEPOSIT
RXED
TWO
YEARS
PRIOR 140 `=25%*560

CASH
FLOW IN
YEAR OF
SALE 420 `=560-140
AT 300 UNITS

NOTE

TOTAL
PRODN
FOR 6
YEARS 300
PRODN
/YR 50

COST PER
PLANE 14 MILLION

ANNUAL
PRODN
COST 700 MILLION

REVENUE
IN YEAR 5 800 `=50*16

DEPOSIT
RXED
TWO
YEARS
PRIOR 200 `=25%*800

CASH
FLOW IN
YEAR OF
SALE 600 `=800-200