NAMA = DWI AYUNINGSIH ( 20190101360 )

MATKUL = AKUNTANSI MANAJEMEN KJ 301 ( SESI 13 )

A manager is trying to evaluate 2 projects with the following features :

Project 1 Project 2
Initial Outlay £ 2.000.000 520.000
Free Cash Flow per annum £ 500.000 130.000
Project Life 6 years 6 years
Required Rate of Return 12 % 12 %

The manager has to decide which project is the better of the two.
PROJECT 1
Year Cash Flow Discount Factor PV
0 ( £ 2.000.000 ) 1.000 ( £ 2.000.000.000 )
1 £ 500.000 0.8929 £ 446.428,57
2 £ 500.000 0.7972 £ 398.596,94
3 £ 500.000 0.7118 £ 355.890,12
4 £ 500.000 0.6355 £ 317.759,04
5 £ 500.000 0.6574 £ 283.713,43
6 £ 500.000 0.5066 £ 253.315,56
NPV £ 55.703,66

Net Present Value £ 55.703,66

Profitability Index 1,03
Internal Rate of Return 12,98 %
Should Project be Accepted YES
PROJECT 2
Year Cash Flow Discount Factor PV
0 ( £ 520.000 ) 1.000 ( £ 520.000.000 )
1 £ 130.000 0.8929 £ 116.071,43
2 £ 130.000 0.7972 £ 103.635,20
3 £ 130.000 0.7118 £ 92.531,43
4 £ 130.000 0.6355 £ 82.617,35
5 £ 130.000 0.6574 £ 73.765,49
6 £ 130.000 0.5066 £ 65.862,05
NPV £ 14.482,95
Net Present Value £ 14.482,95
Profitability Index 1,03
Internal Rate of Return 12,98 %
Should Project be accepted ? YES

From the above results the manager can see that the returns from the projects are identical apart
from the NPV’s. the difference between the NPV of each project is accounted for because project
1 is about 3.85 times the sized of project 2 and if you multiplied the NPV on project 2 by 3.85
you would get a similar answer to project 1