Question 1 [36]

3.1. Calculating NPV and IRR - LaserX

Rand PVIF10%,n Present values PVIF22%,n Present values
@ 10% @ 22%
80 000 0.909 72 720 ✓ 0.820 65 600 ✓
100 000 0.826 82 600 ✓ 0.672 67 200 ✓
150 000 0.751 112 650 ✓ 0.551 82 650 ✓
180 000 0.683 122 940 ✓ 0.451 81 180 ✓
390 910 ✓ 296 630 ✓
(350 000) (350 000) ✓
NPV = 40 910✓ NPV = (53 370) ✓
Calculating NPV and IRR 3DPro

Rand PVIF10%,n Present values @ 10%

150 000 0.909 136 350 ✓
250 000 0.826 206 500 ✓
275 000 0.751 206 525 ✓
300 000 0.683 204 900 ✓
754 275 ✓
(600 000)
NPV = 154 275 ✓

𝑃𝑉10% − 𝑃𝑉22%
IRRL = Rate10% + [𝑃𝑉𝐿,10% ÷ ( ) ] 𝑥 100✓
𝑅𝑎𝑡𝑒22% − 𝑅𝑎𝑡𝑒10%
40 910✓ − (53 370)✓
IRRL =10%✓ + [40 910✓ ÷ ( )] 𝑥 100
22%✓ − 10%✓
94 280
IRRL =10% + [40 910 ÷ ( ) ] 𝑥 100
12%
IRRL =10% + [40 910 ÷ 785 667✓] × 100
IRRL =10% + 5.2%✓
IRRL =15.2%✓

Alternatively
𝑃𝑉10% − 𝑃𝑉22%
IRRL = Rate22% + [𝑃𝑉𝐿,22% ÷ ( ) ] 𝑥 100
𝑅𝑎𝑡𝑒22% − 𝑅𝑎𝑡𝑒10%
40 910✓ − (53 370)✓
IRRL =22%✓ + [(53 570)✓ ÷ ( )] 𝑥 100
22%✓ − 10%✓
94 280
IRRL =22% + [(53 370) ÷ ( ) ] 𝑥 100
12%
IRRL =22% + [(53 370) ÷ 785 667✓] × 100
IRRL =22% + (6.8%)%✓
IRRL =15.2%✓
(29)

3.2. Recommendation

The NPVs for both printers are positive. ✓

• When comparing the NPVs ✓ of the two printers, the company should choose
3Dpro ✓ because it has a much higher ✓ NPV compared to LaserX.
• When comparing the IRRs ✓ of the two projects, the IRR for 3Dpro is also higher ✓
at 20% compared to the 15% IRR from LaserX. On this basis the company should
also choose 3Dpro. ✓ (7)