HOMEWORK 5

A firm is to invest P300,000  which of these three proposals under consideration can
give the highest     net present value at 9% and at 16%
 

Second
Year First Proposal Third Proposal
Proposal

1 P    80,000       100,000       0

2       80,000       120,000    100,000

3       80,000       140,000         0   

4       80,000      200,000

5       80,000      120,000

Total P 400,000   P   360,000 P  420,000

 
Questions:  Determine the present value and the net present value of each proposal at
discount rate of 8%.  And if the discount rate is 15% then compute the present value
and the net present value of each proposal.  

DISCOUNT RATE OF 8%

PROPOSAL 1 NPV

1−1.08−5
P 80,000 ( 0.08 )= 319,416.80 – 300,000 = P19,416.80

YEA PROPOSAL 2 PROPOSAL 3

R
1 P100,000/(1.08)1= P92,592.59 P 0 P 0
2 120,000/(1.08)2= 102,880.66 100,000/(1.08)2= 85,733.88
3 140,000/(1.08)3= 111,136.51 0 0
4 ___ 200,000/(1.08)4= 147,005.97
5 ___ 120,000/(1.08)5= 81,669.98
Total Cash Inflow at
Present Value P306,609.76 P314,409.83
Cash Outflow 300,000.00 300,000.00
Net Present Value P 6,609.76 P14,409.83

 Out of the three proposal, the highest net present value at 8% is the
proposal 1 yielding 19,416.80 .
DISCOUNT RATE OF 15%
PROPOSAL 1 NPV

1−1. 15−5
P 80,000 (
0.15 )
= 268,172.41– 300,000 = P(31,827.59)

YEA PROPOSAL 2 PROPOSAL 3

R
1 P100,000/(1.15)1= P86,956.52 P 0 P 0
2 120,000/(1.15)2= 90,737.24 100,000/(1.15)2= 75,614.37
3 140,000/(1.15)3= 92,052.27 0 0
4 ___ 200,000/(1.15)4= 114,350.65
5 ___ 120,000/(1.15)5= 59,661.21
Total Cash Inflow at
Present Value P269,746.03 P249,626.23
Cash Outflow 300,000.00 300,000.00
Net Present Value P(30,253.97) P(50,373.77)

 At 15% the three proposal yields a negative Net present value, among the three
proposal the highest net present value was the proposal 3.

Discount rate at 9%

Proposal 1 NPV
1−1.0 9−5
P 80,000 ( 0.0 9 ) = 311,172.10 – 300,000 = P11,172.10

YEA PROPOSAL 2 PROPOSAL 3

R
1 P100,000/(1.09)1= P91,743.12 P 0 P 0
2 120,000/(1.09)2= 101,001.60 100,000/(1.09)2= 84,168
3 140,000/(1.09)3= 108,105.69 0 0

4 ___ 200,000/(1.09)4= 141,685.04

5 ___ 120,000/(1.09)5= 77,991.77
Total Cash Inflow at
Present Value P300,850.41 P303,844.81
Cash Outflow 300,000.00 300,000.00
Net Present Value P 850.41 P3,844.81

 The highest net present value at 9% is the proposal 1

Discount rate at 16%

1−1. 16−5
P 80,000 ( 0.1 6 )= 261,943.49 – 300,000=
P(38,056.51)
YEA PROPOSAL 2 PROPOSAL 3
R
1 P100,000/(1.16)1= P86,206.90 P 0 P 0
2 120,000/(1.16)2= 89,179.55 100,000/(1.16)2= 74,316.29
3 140,000/(1.16)3= 89,692.07 0 0
4 ___ 200,000/(1.16)4= 110,458.22
5 ___ 120,000/(1.16)5= 57,133.56
Total Cash Inflow at
Present Value P265,078.52 P241,908.07
Cash Outflow 300,000.00 300,000.00
Net Present Value P(34,921.48) P(58,091.93)

 At 16% the three proposal yields a negative Net present value, among the three
proposal the highest net present value was the proposal 3.