Phạm Quốc Đạt

F13E

Scenario 1:

 Payback Period

+ Definition: “The time it takes to recoup the cost of an investment is referred to as the payback
period. It's the amount of time it takes for a project to reach break-even. The break-even point is
the point at which the cost of production equals the revenue of a product or service.” (Deskera,
2021)

+ Advantage:

Payback period, as an analytical tool, is commonly used because it is easy to apply and
understand for most individuals, regardless of academic training or field of endeavor.

Payback period is an effective measure of investment risk. It is widely used when liquidity is an
important criterion for project selection.

The payback method is suitable for small investment projects. It is not worth spending a lot of
time and effort on complex economic analysis in such projects.

+ Disadvantage:

Payback ignores the time value of money.

Payback ignores cash flows beyond the payback period, thereby ignoring the “profitability” of a
project.

For a more accurate payback calculation: Payback Period = Amount to Invest / Estimated Annual
Net Cash Flow.

+ Calculate:

 Project A

Initial investment: 300,000

Year Cash Flow Cum CF Discounted rate (8%)
0 -300,000 -300,000 1
1 120,000 -180,000 0.926
2 100,000 -80,000 0.857
3 150,000 70,000 0.794
4 20,000 90,000 0.735

Payback period = 2 years + 70,000/150,000 years = 2.467 years

NPV:

PV inflow = 120,000 x 0.926 + 100,000 x 0.857 + 150,000 x 0.794 + 20,000 x 0.735= 330,620

PV outflow = -300,000

Net present value (NPV) = PV inflow - PV outflow = 330,620 - 300,000 = 30,620

 Project B

Initial investment: 380,000

Year Cash Flow Cum CF Discounted rate (8%)

0 -380,000 -380,000 1
1 40,000 -340,000 0.926
2 50,000 -290,000 0.857
3 60,000 -230,000 0.794
4 180,000 -50,000 0.735
5 170,000 120,000 0.681
6 100,000 220,000 0.63

Payback period = 5 years + 120/170 years = 5.7 years

NPV:

PV inflow = 40,000 x 0.926+ 50,000 x 0.857 + 60,000 x 0.794 + 180,000 x 0.735 + 170,000 x
0.681 + 100,000 x 0.63 = 438,600

PV outflow = -380,000

Net present value (NPV) = PV inflow - PV outflow = 438,600 - 380,000 = 58,600

 Project C

Initial investment: 280,000

Year Cash Flow Cum CF Discounted rate (8%)

0 -280,000 -280,000 1
1 70,000 -210,000 0.926
2 50,000 -160,000 0.857
3 90,000 -70,000 0.794
4 -30,000 -100,000 0.735
5 120,000 20,000 0.681
6 140,000 160,000 0.63
7 90,000 250,000 0.583

Payback period = 5 years + 20,000/120,000 years = 5,167 years

NPV:

PV inflow = 70,000 x 0.926 + 50,000 x 0.857 + 90,000 x 0.794 - 30,000 x 0.735 + 120,000 x
0.681 + 140,000 x 0.63 + 90,000 x 0.583 = 379,470

PV outflow = -280,000

Net present value (NPV) = PV inflow - PV outflow = 379,470 - 280,000 = 99,470

+ Ranking each method

+ Recommendation: The shortest payback period is generally considered the most acceptable.
This is an especially good rule to follow when a company is deciding between one or more
projects or investments. The reason is, the longer money is tied up, and the less opportunity there
is to invest elsewhere. We see that in 3 projects, project A has the shortest payback period,
equivalent to 1/2 the time of Project B and C, with a relative investment of 300,000. Therefore,
Project A is the optimal choice for the company in this method.

Net Present Value (NPV)

+ Definition: “NPV is the net present value, i.e. the value of all future cash flows of a certain
project discounted to present time. NPV is one of the commonly used tools in analyzing the
profitability of an investment project.” (CFI, 2021)

+ Advantage:

Ease of use: The NPV metric basically determines the present value of an investment's gain or
loss, making it easy to understand and a great decision-making tool.

Ease of comparison: NPV allows for easy comparison of potential investments. As long as the
NPVs of the options are calculated at the same time, the investor can compare the feasibility of
each alternative.

Customizable: The NPV is customizable to accurately reflect a company's financial concerns and
needs.

+ Disadvantage

Difficult to estimate accurately: Calculating NPV requires investors to know the exact discount
rate, size of each cash flow, and when each cash flow occurs. Usually, this is unspecified.

Don't take opportunity costs into account: NPV is only useful when comparing projects at the
same time. It does not fully account for opportunity cost.

NPV takes into account the opportunity cost of not having capital to spend on future investment
options.
Doesn't Show The Big Picture: Another problem with relying on NPV is that it doesn't provide
an overall picture of the gains or losses from undertaking a given project.

+ Calculate:

NPV of Project A

PV inflow = 120,000 x 0.926 + 100,000 x 0.857 + 150,000 x 0.794 + 20,000 x 0.735= 330,620

PV outflow = -300,000

Net present value (NPV) = PV inflow - PV outflow = 330,620 - 300,000 = 30,620

NPV of Project B

PV inflow = 40,000 x 0.926+ 50,000 x 0.857 + 60,000 x 0.794 + 180,000 x 0.735 + 170,000 x
0.681 + 100,000 x 0.63 = 438,600

PV outflow = -380,000

Net present value (NPV) = PV inflow - PV outflow = 438,600 - 380,000 = 58,600

NPV of Project C

PV inflow = 70,000 x 0.926 + 50,000 x 0.857 + 90,000 x 0.794 - 30,000 x 0.735 + 120,000 x
0.681 + 140,000 x 0.63 + 90,000 x 0.583 = 379,470

PV outflow = -280,000

Net present value (NPV) = PV inflow - PV outflow = 379,470 - 280,000 = 99,470

+ Ranking each method

+ Recommendation

Khi có được chỉ số NPV của nhiều phương án, nhà đầu tư sẽ chỉ cần chọn phương án có NPV
cao nhất vì nó sẽ cung cấp nhiều giá trị nhất cho công ty.

https://dragonlend.vn/dragonlend-blog/chi-so-npv-la-gi-cong-thuc-va-uu-nhuoc-diem-cua-npv/
ARR:

 Project A

Capital cost = 300,000

Depreciation = 300,000

Profit before depreciation = 120,000 + 100,000 + 150,000 + 20,000 = 390,000

Average annual accounting profit = (profit before depreciation - depreciation)/ years = (390,000
– 300,000)/4 = 22,500

Average investment = Capital cost /2 = 300,000/2 = 150,000

ARR = (Average annual accounting profit / Average investment) x 100% = 22,500/150,000

x100% = 15%

 Project B

Capital cost = 380,000

Depreciation = 380,000

Profit before depreciation = 40,000 + 50,000 + 60,000 + 180,000 + 170,000 + 100,000 = 600,000

Average annual accounting profit = (profit before depreciation - depreciation)/years = (600,000 –

380,000)/6 = 36,666.67

Average investment = Capital cost /2 = 380,000/2 = 190,000

ARR = (Average annual accounting profit / Average investment) x 100% = (36,666.67/190,000)

x100% = 19.3%

 Project C

Capital cost = 280,000

Depreciation = 280,000
Profit before depreciation = 70,000 + 50,000 + 90,000 - 30,000 + 120,000 + 140,000 + 90,000 =
530,000

Average annual accounting profit = (profit before depreciation - depreciation)/years = (530,000 –

280,000)/7 = 35,714.28

Average investment = Capital cost /2 = 280,000/2 = 140,000

ARR = (Average annual accounting profit / Average investment) x 100% = (35,714.28/140,000)

x100% = 25.5%

Discounted payback period

Project A

Year Cash Flow Discounted rate (8%) Discounted CF Cumulative discounted CF

0 -300,000 1 -300,000 -300,000

1 120,000 0.926 111,120 -188,880
2 100,000 0.857 85,700 -103,180
3 150,000 0.794 119,100 15,920
4 20,000 0.735 14,700 30,620

Discounted payback = 2.87 years

Project B

Year Cash Flow Discounted rate (8%) Discounted CF Cumulative discounted CF

0 -380,000 1 -380,000 -380,000
1 40,000 0.926 37,040 -342,960
2 50,000 0.857 42,850 -300,110
3 60,000 0.794 47,640 -252,470
4 180,000 0.735 132,300 -120,170
5 170,000 0.681 115,770 -4,400
6 100,000 0.63 63,000 58,600
Discounted payback = 5.07 years

Project C

Year Cash Flow Discounted rate (8%) Discounted CF Cumulative discounted CF

0 -280,000 1 -280,000 -280,000
1 70,000 0.926 64,820 -215,180
2 50,000 0.857 42,850 -172,330
3 90,000 0.794 71,460 -100,870
4 -30,000 0.735 -22,050 -122,920
5 120,000 0.681 81,720 -41,200
6 140,000 0.63 88,200 47,000
7 90,000 0.583 52,470 99,470

Discounted payback = 5.47 years

Project A
Year Cash Flow Discounted rate Present value Discounted rate Present value
(13%) (13%) (16%) (16%)
0 -300,000 1 -300,000 1 -300,000
1 120,000 0.885 106,200 0.862 103,440
2 100,000 0.783 78,300 0.743 74,430
3 150,000 0.693 103,950 0.641 96,150
4 20,000 0.613 12,260 0.552 11,040
 NPV 710 -14,940
IRR 13% +[710/(710 + 14,940) x (16% - 13%) = 13.13%

Project B
Year Cash Flow Discounted rate Present value Discounted rate Present value
(8%) (8%) (12%) (12%)
0 -380,000 1 -380,000 1 -380,000
1 40,000 0.926 37,040 0.893 35,720
2 50,000 0.857 42,850 0.797 39,850
3 60,000 0.794 47,640 0.712 42,720
4 180,000 0.735 132,300 0.636 114,480
5 170,000 0.681 115,770 0.567 96,390
6 100,000 0.63 63,000 0.507 50,700
NPV 58,600 -140
IRR 8% +[58,600/(58,600 + 140) x (12% - 8%) = 12%
 Project C
Year Cash Flow Discounted rate Present value Discounted rate Present value
(16%) (16%) (20%) (20%)
0 -280,000 1 -280,000 1 -280,000
1 70,000 0.862 60,340 0.883 61,810
2 50,000 0.743 37,150 0.694 34,700
3 90,000 0.641 57,690 0.579 52,110
4 -30,000 0.552 -16,560 0.482 -14,460
5 120,000 0.476 57,120 0.402 48,240
6 140,000 0.410 57,400 0.335 46,900
7 90,000 0.354 31,860 0.279 25,110
NPV 5,000 -25,590
IRR 16% +[5,000/(5,000 + 25,590) x (20% - 16%) = 16.65%
 Hoa Sen Subsidiary

Flexible Budget Performance Report

Budget Flexible Actual Variance Effect
(550,000 budget (620,000 (Flexible
units) (620,000 units) vs Actual)
units)
Number of units sold (000) 550 620 620 0
$’000 $’000 $’000
Cost of sales (all variable)
Materials 168 192.2 154 38.2 F
Labour 240 272.8 268 4.8 A
Overhead 35 37.2 40 (2.8) A
Fixed labour 120 120 105 15

Selling and distribution cost

Fixed 68 68 75 -7 A
Variable 170 192.2 165 27.2 F

Administration fixed
Fixed 180 180 178 2 F
Variable 55 62 61 1 F

Total cost 1,036 1,124.4 1,046 78.4 F

Sales 1,100 1,240 1,175 65 A
Net profit 64 115,6 129 (13.4) F

Flexible Budget at 620,000 units

Number of units sold 620,000 620,000

Cost of sales (all variable)

Materials 620,000 x 0.31 192,200
Labour 620,000 x 0.44 272,800
Overhead 620,000 x 0.06 37,200
Fixed labour 120,000 120,000
Selling and distribution cost
Fixed 68,000 68,000
Variable 620,000 x 0.31 192,200

Administration fixed
Fixed 180,000 180,000
Variable 620,000 x 0.1 62,000
Có thể thấy rằng bộ phận mua hàng và sản xuất pany.

của công ty đã hoàn thành tốt nhiệm vụ của mình vì đã tiết kiệm được chi phí và nguyên liệu đầu
vào

Ngược lại, phòng kinh doanh chưa làm tốt nhiệm vụ của mình do doanh số chưa đạt chỉ tiêu.

Tuy nhiên, nhờ bộ phận thu mua và sản xuất đã làm tốt công việc và tiết giảm chi phí sản xuất
nên từ đó đến nay công ty vẫn có lãi.