CAPITAL BUDGETING

NPV Technique:
A company is considering the following investment projects:
Cost of Capital = 12%

PROJECTS CASH FLOWS

C0 C1 C2 C3 NPV
A -10,000 10,000 NIL NIL -1071.43
B -10,000 7,500 7,500 NIL 2675.38
C -10,000 2,000 4,000 12,000 3515.85
D -10,000 10,000 3,000 3,000 3455.49

Cost of NPV NPV NPV NPV

Capital Project A Project B Project C ProjectD
10% -909.09 3016.53 4139.74 3824.19
15% -1304.35 2192.82 2653.90 2936.63
20% -1666.67 1458.33 1388.89 2152.78
25% -2000.00 800.00 304.00 1456.00
30% -2307.69 207.10 -632.68 832.95
 CAPITAL BUDGETING

IRR Technique:

CASH FLOWS
PROJECTS C0 C1 C2 C3 IRR
A -10,000 10,000 NIL NIL 0%
B -10,000 7,500 7,500 NIL 32%
C -10,000 2,000 4,000 12,000 27%
D -10,000 10,000 3,000 3,000 38%
Inte rnal R ate of R e turm

IRR
40%

35%

30%

25%
IRR
20%

15%

10%

5%

0%
A B C D

PROJECTS

The project with higher IRR will be preferred. So, project D will be selected
 CAPITAL BUDGETING

MIRR Technique:

CASH FLOWS
PROJECTS C0 C1 C2 C3 MIRR
A -10,000 10,000 NIL NIL 0%
B -10,000 7,500 7,500 NIL 26%
M o d ifi e d I n t e r n a l R a t e o f R e t u r n

C -10,000 2,000 4,000 12,000 24%

D -10,000 10,000 3,000 3,000 24%

30%
MIRR
25%

20%

15%

10%

5%

0%
A B C D
-5%

PROJECTS