DISCOUNTED PAYBACK PERIOD - EXERCISE 1

Cost of Investment 5,000,000

Project X PV at 14 % CFAT PVCI PVCI TO DATE
Year 1 0.877 2,000,000 1,754,000.00 1,754,000.00
Year 2 0.769 2,000,000 1,538,000.00 3,292,000.00
Year 3 0.675 2,000,000 1,350,000.00 4,642,000.00
Year 4 0.592 2,000,000 1,184,000.00

5,000,000-4,642,000 358,000
358,000/1,184,000 0.302

Cost of Investment 5,000,000

Project Y PV at 14% CFAT PVCI PVCI TO DATE
Year 1 0.877 3,500,000 3,069,500 3,069,500
Year 2 0.769 2,500,000 1,922,500 4,992,000
Year 3 0.675 1,500,000 1,012,500
Year 4 0.592 500,000 296,000

5,000,000-4,992,000 8,000
8,000/1,012,500 0.007901

NPV AND PI - EXERCISE 2

Requirement 1: NPV and PI of two projects
Produce Wooden Toy PV at 14% PV of Cash Flow
CFAT 500,000 3.889 1,944,500.00
SV 100,000 0.456 45,600.00
WC 200,000 0.456 91,200.00
Total Inflows 2,081,300.00
Net Investment 1,600,000
Net Present Value 481,300.00

Profitability Index
2,081,300
1,600,000 1.3008 or 1.30

Distribute an Imported Product PV at 14% PV of Cash Flow

CFAT 400,000 3.889 1,555,600
SV
WC 1,400,000 0.456 638,400
Total Inflows 2,194,000
Net Investment 1,600,000
Net Present Value 594,000

Profitability Index
 2,194,000
1,600,000 1.37125 or 1.37

Requirement 2: Quantify the net advantage of the better alternative

PI of Wooden Toy 1.3

PI of Distribute Imported Product 1.37
Net Advantage in PI 0.7

NPV of Wooden 481,300

NPV of Distribute 594,000
Net Advantage in NPV 112,700

Decision: Choose to distribute an imported product for a net advantage of 0.7 in PI and 112,700 in NPV.

IRR (Even Cash flows) - EXERCISE 3

520,000
200,000 2.6 (PVFA)

PVFA PVFA in Step 1 Difference

19% 2.63859 2.6 0.03859
20% 2.58873 2.6 -0.01127
0.04986

Discount Rate
19% + (1% * 0.03859/0.04986) = 19.77%
20% - (1% * 0.01127/0.4986) = 19.77%

IRR (Uneven Cash Flows) - EXERCISE 4

Period Cash Flow 16% PV of Cash Flows at 16 %
1 350,000.00 0.8621 301,735.00
2 300,000.00 0.7432 222,960.00
3 250,000.00 0.6407 160,175.00
4 150,000.00 0.5523 82,845.00
5 80,000.00 0.4761 38,088.00
SV 40,000.00 0.4761 19,044.00
PVCI 824,847.00

Target PVCI Difference

16% 824,847.00 800,000.00 24,847.00
18% 794,057.00 800,000.00 5,943.00
30,790.00

Discount Rate Time Adjusted Rate of Return

16% + ( 2% * 24,847/30,790 ) = 17.61%
18% - ( 2% * 5,943/30,790 ) = 17.61%
 DPBP
1
1
1
0.302
3.30 yrs

DPBP
1
1
0.007901

2.0079 yrs.
 18% PV of Cash Flows at 18%
0.8475 296,625.00
0.7182 215,460.00
0.6086 152,150.00
0.5158 77,370.00
0.4371 34,968.00
0.4371 17,484.00
794,057.00
EAA - EXERCISE 5
OUTBACK
Year PV at 10 % Cash Flow PV of Cash Flow
1 0.909 5,000,000.00 4,545,000.00
2 0.826 6,000,000.00 4,956,000.00
3 0.751 8,000,000.00 6,008,000.00
4 0.683 3,000,000.00 2,049,000.00
5 0.621 2,000,000.00 1,242,000.00
18,800,000.00
Net Investment (15,000,000.00)
Net Present Value 3,000,000.00

EAA OUTBACK 10% x 3,800,000

1 - ( 1 + 10% ) ^ -6 1,002,430.42

ACCELERATE
Year PV at 8% Cash Flow PV of Cash Flow
1 0.926 8,000,000.00 7,408,000.00
2 0.857 2,000,000.00 1,714,000.00
9,122,000.00
Net Investment (8,000,000.00)
Net Present Value 1,122,000.00

EAA ACCELERATE 8% x 1,122,000

1 - ( 1 + 8% ) ^ -2 629,183.08

CROSSOVER RATE - EXERCISE 6

Project A Project B Difference

Cost of Investment (25,000,000.00) (40,000,000.00) 15,000,000.00
Year 1 30,000,000.00 30,000,000.00
Year 2 20,000,000.00 20,000,000.00
Year 3 10,000,000.00 125,000,000.00 (115,000,000.00)
IRR 77.69% 212.50%
CROSSOVER RATE 33.02%

FISHER RATE - EXERCISE 7

1 + 13.40% 1.134
1 + 5.00% 1.05 1.08 - 1 0.08 or 8%