Investment Decisions: (Capital Budgeting Techniques)

Investment Decisions
(Capital Budgeting Techniques)

• Investment Decisions relate to the decision of a
Company to invest its funds into long-term assets with
the view to generate positive cash flows in the future.
• The crux of Investment decisions is to invest in projects
that yield a return greater than the minimum
acceptable hurdle rate.
• Investment Decisions involve substantial cash outlays
which are not easily reversible.
• They create value for the firm is the benefits are more
than their costs.
• Capital Budgeting Techniques help in analysing
potential business opportunities in order to decide
which are worth taking up.
Investment Decisions 2
Capital Budgeting Techniques
• Implications of Investment decisions:
▪ Investment decisions are irreversible without substantial loss of
funds;
▪ Commitment of huge amount of outlay;
▪ Long-term implications for the firm.
• Investment Decisions may be:
▪ New Projects; • Mutually Exclusive
▪ Expansion Projects; • Independent Exclusive
▪ Replacement & Modernisation.
▪ Diversification projects
▪ R & D projects
▪ Misc. / Other Projects
• Investment Evaluation Process:
1. Estimation of the required rate of return (Hurdle rate);
2. Estimation of Investment requirements in & Benefits from the project;
3. Application of Investment Decision Rules (Capital Budgeting
Techniques).
Capital Budgeting Techniques
▪ Accounting Rate of Return / Return on Capital/
Return on Equity
▪ Payback Period
▪ Discounted Payback period
▪ Net Present Value (NPV)
▪ Internal Rate of Return (IRR)
▪ Modified IRR (MIRR)
▪ Profitability Index (PI)
Accounting Rate of Return (ARR)
• Divide Accounting profits by the Average Investment / Equity in
the Project.
✓ Return on Capital:
ARR (RoC) Post-Tax Basis = EBIT*(1-t) /Average Investment
ARR (RoC) Pre-Tax Basis = EBIT /Average Investment
✓ Return on Equity:
ARR (RoE) = PAT / Average Equity
= EBIT *(1-t)/ Average Equity
Particulars Yr 1 Yr 2 Yr 3 Yr 4 Yr 5 Average
EBDIT 10,000 12,000 14,000 16,000 20,000
Depreciation 8,000 8,000 8,000 8,000 8,000
EBIT 2,000 4,000 6,000 8,000 12,000
Taxes @30% 600 1,200 1,800 2,400 3,600
EBIT*(1-t) 1,400 2,800 4,200 5,600 8,400 4,480
Average Investment: Average

Opening 40,000 32,000 24,000 16,000 8,000
Depreciation 8,000 8,000 8,000 8,000 8,000
Closing 32,000 24,000 16,000 8,000 -
Average 36,000 28,000 20,000 12,000 4,000 20,000
Yearly ARR
(or ROC) 3.89% 10.00% 21.00% 46.67% 210.00%
Average ARR(or ROC) 58.31% 22.40%
Return on Capital
You are required to evaluate a project that has a life of 5 years
and involves an initial investment of $ 25 Mn. The investment
shall depreciate on SLM to a salvage value of $ 10 Mn. The
revenues are expected to be $ 20 Mn in year 1 which shall grow @
10% a year thereafter. The cost of goods sold (excluding
depreciation) is 50% of revenues. Tax rate is 40%. Estimate the
pre-tax & post-tax basis for the project. If the firm’s minimum
hurdle rate is 12%, would you accept the project.
Return on Capital
Acceptance Rule:
➢ if ARR > Minimum Acceptable Hurdle rate, Accept the Project
➢ if ARR < Minimum Acceptable Hurdle rate, Do Not Accept
Advantages:
✓ Uses readily available Accounting Information
✓ Easy to Comprehend
✓ Considers the entire Income Stream
Disadvantages:
❑ Considers Accounting Information – subject to manipulation
(Depreciation / Inventory Valuation method)
❑ Ignores TVM
❑ Works well with projects with large initial up-front
investments.
PAT Vs. Cash Flow
Income Statement Cash Flow

Sales Revenue 1,000.0 Inflow 1,000.0
Less: Cost of Sales 640.0 Outflow 640.0
EBDIT 360.0
Less: Depreciation 50.0 Non-Cash
EBIT 310.0
Less: Interest 40.0 Outflow 40.0
PBT 270.0
Less Taxes @35% 94.5 Outflow 94.5
PAT 175.5 Net Cash Flow 225.5
Cash Flow = PAT + Depreciation
Investment Decisions 225.5 = 175.5 + 50.0 10
Payback Period
• Period required to recover the original cash outflow
invested into a project.
• “How quickly the firm will get back its initial investment
outlay?”
• Procedure: Accumulate the net cash benefits for each
year until the sum equals the initial investment outlay.
Payback Period
Year Cash Flow Cumulative Cash Flow

0 (65,000)
1 8,000 8,000
2 12,000 20,000
3 15,000 35,000
4 25,000 60,000
5 30,000 90,000
6 40,000 1,30,000
Payback period = 4 + {(65,000 - 60,000)/30,000}*12

= 4 years + 2 months
Payback Period
A firm has two capital investment projects – A & B which
are under review for funding. Both the projects cost Rs
5000/- each and the projects have the following cash
flows: Year Project A Project B
0 -5000 -5000
1 1000 4000
2 2000 3000
3 2000 2000
4 4000 1000
What is the payback period for each of the projects.
Which project should be accepted , if the firm has a cut-
off point as two years?
Payback Period
As the cut-off point is 2 years, Project B should be accepted over Project A
Payback Period
Payback
Project Yr 0 Yr 1 Yr 2 Yr 3 Yr 4 Yr 5 Period
A (5,000) 500 1,500 3,000 4,500 5,500 3 years
B (5,000) 500 4,500 3,000 1,500 800 2 years
C (5,000) 4,500 500 3,000 1,500 800 2 years
• Issues with Payback period:

– Ignores the time value of money
– Ignores cash flows after the cutoff date
– Gives equal weight to cash flows before the cutoff date
– Biased against long-term projects (chooses short-term
projects)
– Requires an arbitrary acceptance criteria
– Breaks down if investment is spread over time.
Discounted Payback Period
Net Present Value (NPV)
• NPV =
Sum of Present Value (at LESS Initial Investment
Hurdle rate) of Cash Inflows (or PV of Cash Outflows)
CFt N
NPV =  t
- Initial Investment
t=1 (1+r)
(or PV of Cash Outflows)

• Estimating NPV:
1. Set the Minimum Hurdle rate
2. Estimate Initial Investment
3. Estimate future cash inflows: how much? and when?
4. Deduct Initial Investment from the sum of present value of Cash
Inflows
0 1 2 3 4 5
-1000.00 300 350 400 450 500

230.77
207.10
182.07
157.56
134.66
-87.84 = NPV @ 30%

• If the PV of Cash Inflows > PV of Cash Outflows, i.e.
expected benefits are more than the project costs, and
hence NPV is +ve. Such a project will increase the value of
the firm and hence the shareholders’ wealth. 18
< ----------------------- =1/(1+$C$2)^A4
912.16
✓ .
• Acceptance Criteria:
✓ if NPV > 0, accept the project
✓ If NPV < 0, do not accept the project
19
Net Present Value
Officekart wants to evaluate a project with the following cash flows:
Year Cash Flows
0 -15,000
1 5,000
2 5,000
3 10,000
If the required rate of return for Officekart is 12%, should it accept
the project using NPV? (what is the payback period?)
Year Net Cash Flow PVIF @ 12% Present Value
0 (15,000) 1.0000 (15,000.00)
1 5,000 0.8929 4,464.29
2 5,000 0.7972 3,985.97
3 10,000 0.7118 7,117.80
NPV@12% 568.06
Features of NPV
1. Considers Time Value of Money
2. Considers Cash Flows (and not Accounting Profits)
3. Considers all the Cash Flows
4. Reinvestment at hurdle rate: Intermediate cash flows
are assumed to be reinvested at the hurdle rate.
Features of NPV
5. Net Present Values are additive:
NPV(A+B) = NPV(A) + NPV(B)
✓ Value of firm = ∑ NPV of Projects in Place + ∑ NPV of
expected future projects
✓ When a firm terminates an existing project with –ve NPV ,
the value of firm would increase by the amount of –ve
NPV.
✓ When a firm sells an asset (division), price received would
affect the firm value . If price received > present value of
division, firm value shall increase by difference.
✓ When a firm makes an acquisition at a price that exceeds
the present value of the expected cash flows from the
acquisition (equal to accepting a –ve NPV project), its
Features of NPV
6. NPV allows for time-varying discount rates:
CF1 CF2 CF3 CFn
+ + +....+ - Initial Investment
(1+r1 ) (1+r1 )(1+r2 ) (1+r1 )(1+r2 )(1+r3 ) (1+r1 )(1+r2 )(1+r3 )...(1+rn )
Net Cash Discount

Year Flow Rate PV
0 (1,000) 10% 1/(1.10)0 (1,000.00)
1 300 10% 1/(1.10)1 272.72
2 400 11% 1/(1.10)(1.11) 327.60
3 500 12% 1/(1.10)(1.11)(1.12) 365.63
4 600 13% 1/(1.10)(1.11)(1.12)(1.13) 388.27
NPV 354.23
o Discount rates may change due to changes in (a) Interest rates (b) Risk
characteristics of project, and (c) Financing mix
Features of NPV
You are trying to estimate the NPV of a 3-year project,
where the discount rates is expected to change over
time:
Year Cash Flows Discount Rate
0 -15,000 9.5%
1 5,000 10.5
2 5,000 11.5
3 10,000 12.5
What is the NPV of the Project? Would you accept it?
Features of NPV
Internal Rate of Return (IRR)
• IRR: the discount rate that equates the sum of
present values of Cash Inflows with the Initial
Investment.
-200 50 100 150
0 1 2 3
50 100 150
NPV@10% : 1
+ 2
+ 3
- 200 = 37.09
(1.10) (1.10) (1.10)
50 100 150
IRR : 1
+ 2
+ 3
= 200
(1+ IRR) (1+IRR) (1+IRR)
The internal rate of return for this project is 19.44%

NPV Payoff Profile
Discount Rate NPV
120 NPV is +ve at discount
0% 100.00
100 rates lower than
4% 71.04 19.44%. Project is
80
8% 47.32 accepted
12% 27.79
60 IRR = 19.44%
NPV
40
16% 11.65 20
20% (1.74) 0
24% (12.88) (20)-1% 4% 9% 14% 19% 24% 29% 34% 39%
28% (22.17) (40)

32% (29.93) (60)
Discount rate
NPV is - ve at discount
36% (36.43) rates more than 19.44%.
40% (41.86) Project is Not accepted
44% (46.40)
48% (50.20)
If we graph NPV versus discount rate,
52% (53.36) we can see the IRR as the x-axis
56% (55.99) intercept.
60% (58.17)
IRR: the discount that sets NPV to zero.
IRR
Discounting Rate NPV

IRR:
25% 16.96 25%+x
5 ??% 104.80 25% + (16.96/104.80)*5
0
30%
(87.84) 25% + 0.81% = 25.81% 28
• Acceptance Criteria:
– If IRR> Hurdle Rate, Accept the project
– If IRR< Hurdle Rate, Do not accept the project
• Ranking Criteria:
– Select alternative with the highest IRR
• Reinvestment assumption:
– All future cash flows assumed reinvested at the
IRR.
• NPV of a project is stated in Rupee terms and hence
does not consider the scale of project
• IRR on the other hand standardizes for the scale of
project.
NPV and IRR
Officekart wants to evaluate a project with the following cash
flows:
Year Cash Flows
0 -15,000
1 5,000
2 5,000
3 10,000
If the required rate of return for Officekart is 12%, should it accept
the project using NPV? Estimate the IRR of the project . Does it
lead to same conclusion, if the hurdle rate is 15%?
Year Net Cash Flow PVIF @ 12% Present Value
0 (15,000) 1.0000 (15,000.00)
1 5,000 0.8929 4,464.29
2 5,000 0.7972 3,985.97
3 10,000 0.7118 7,117.80
NPV@12% 568.06
NPV@15% (296.29)
Discounting Rate NPV IRR:

12% 568.06 12% + x
3 ??% 0 864.35 12 + (568.06/864.35)*3
15% (296.29) 12 + 1.97 = 13.97%
Do NPV and IRR always agree?
• In case following cases, both NPV and IRR will
give the same capital budgeting results:
✓Independent projects, and
✓Projects with Conventional cash flows.
• However, when either of these conditions are
not met, NPV and IRR may provide different
results.
Unconventional cash flows
(Multiple IRRs)
Year Cash Flow NPV Profile for Multiple IRR Project
0 -1000 80
1 800 60
2 1000 40
3 1300 20
4 -2200 Discount Rate

NPV
0
IRR1 6.60% -20
IRR2 36.55% -40
Internal Rates of Return
-60
-80
-100
-120
Which is the correct IRR?
No. of IRRs = No. of sign changes in the cash flows.

Modified Internal Rate of Return (MIRR)
• Consider the following project cash flows:
0 1 2 3
-200 150 170 -30
170*(1.16)1= 197
150*(1.16)2= 202
369 = 200(1+r)3 369

1/3
 369 
MIRR =   - 1 = 22.65%
 200 
IRR = 31.12%
NPV @16% = 36.43
MIRR can also resolve the issue of multiple IRRs.
Given below are the estimated cash flows from a project:
Year Cash Flows
0 -47,50,000
1 40,00,000
2 40,00,000
3 -30,00,000
What is the IRR? If the required rate of return is 16%, would
you accept the project? Also estimate the MIRR of the project.
Does it change your decision on accepting this project?
Unconventional Cash Flows
(Projects with no up-front costs)
• In cases where the project costs is spread over
time,and end up with positive cash flows in
every period, there is no IRR!!!!
Year Cash Outflows Cash Inflows Net Cash Flows

0 -100 +150 +50
1 -10 +90 +80
2 -10 +80 +70
3 -50 +70 +20
Unconventional Cash Flows
(Positive initial Cash Inflow(s) followed by outflow(s)
• In some cases, initially the cash flows are
positive followed by cash outflow (s) – Eg.
Insurance co receives insurance premium over
a period of time which is followed by one
outflow on maturity.
Mutually exclusive projects
Differences in Project Size:
Yr 0 Yr 1 Yr 2 Yr 3 Yr 4 NPV @ 15% IRR
A -1,000 350 450 600 750 468 33.66%
B -10,000 3,000 3,500 4,500 5,500 1359 20.88%
Which Project will you choose?

• Based on NPV, project B looks better, but project A has
higher IRR.
Mutually exclusive projects
• Choice of project depends on the constrains in raising
finances for the projects.
• If the firm has the capacity to raise funds for all of its
projects, the NPV would provide the correct answer -
more expensive project need to be picked up over the
less expensive project.
• If there are restriction on how much a firm may raise

and invest, investing in more expensive projects may
lead to rejection of other good projects later on. Hence,
IRR may provide a better answer in such cases.
Timing Problem
Differences in timing of Cash Flows:
Which of the two mutually exclusive projects be accepted, if the
hurdle rate is (a) 15% , (b) 8%?
Year
0 1 2 3 4 5
A (500) 100 100 150 200 400
B (500) 250 250 200 100 50
Timing Problem
Timing Problem
Timing Problem
If discount rate is more than
8.51% and less than 27.38%
(IRR of Project B), then Project
B is better
Project A
Crossover
rate 8.51%
Project B
If discount rate is less

than 8.51%, Project A is
better
Timing Problem
Crossover rate
Practice of Capital Budgeting
CFO Survey Results (USA) - Investment Evaluation Techniques
Source: Graham and Harvey, “The Theory and Practice of Finance: Evidence from the Field,”
Journal of Financial Economics 61 (2001), pp. 187-243.
Practice of Capital Budgeting
Indian Survey Results
Net Present Value 65
Internal Rate of Return 85
Payback Period 67.5
Break-even Analysis 58.2
Profitability Index 35.1
Accounting Rate of Return 34.6
0 20 40 60 80 100
Percentage
Source: Anand, M., 2002, “Corporate Finance Practices in India: A Survey”, Vikalpa, October-
December, Vol 27, No.4, pp 29-56
Mutually Exclusive Projects
Projects with Equal lives:
➢ Compare the NPVs: The simplest way of choosing among
mutually exclusive projects with equal lives is to compare the
NPV of each project and choose the one with the highest NPV.
➢ Differential Cash Flows: Compute the difference in cash flows
for each period and then compute the NPV.
CF0 CF1 CF2 CF3
Project A:
CF0 CF1 CF2 CF3
Project B:
CF0,B- CF0,A CF1,B- CF1,A CF2,B- CF2,A CF3,B- CF3,A

Project B-A:
If NPV B - A > 0, Project B is better than Project A

If NPV B-A < 0, Project A is better than Project B
If IRR B - A > Discount Rate, Project B is better than Project A
48
Investment Decisions If IRR B-A < Discount Rate, Project A is better than Project B
Projects with unequal lives: Project Replication:
Projects with unequal lives: Equivalent Annuities
EA*PVIFA(n,r%)=NPV
NPV
EA =
PVIFA(n,r%)
where, n = Project life

r = Project discount rate
Projects with unequal lives: Equivalent Annuities
• Although, the NPVA > NPVB, but Project B yields higher EA than
Project A.
• Consistent with project replication approach 51
You are a small business owner considering two alternatives for
your phone systems:
Plan A Plan B
Initial Cost $ 50,000 $ 120,000
Annual Maintenance cost $ 9,000 $6,000
Salvage Value $10,000 $ 20,000
Life 20 years 40 years
The discount rate is 8%. Which alternative would you choose?
NPV(A) = -50,000 -9,000*PVIFA(8%, 20 yrs) + 10,000*PVIF(8%, 20 yrs)
= $(136,218)
EA (A) = NPV/PVIFA(8%,20 yrs) = ($13,874)
NPV(B) = -120,000 - 6,000*PVIFA(8%,40 yrs) +20,000*PVIF(8%,40 yrs)

= $(190,627)
EA (B) = NPV/PVIFA(8%,40 yrs) = ($15,986)
Hence it is optimal to go with the first option.
You are the manager of a pharma co. and are considering
to buy laptops for your sales representatives. You can buy
inexpensive (and less powerful) older machines for $2000
each. These would be obsolete in 3 years and would
require annual maintenance cost of $ 150. Alternatively,
you may buy a newer and more powerful laptops for
$4000. These machines will last for 5 years and have an
annual maintenance cost of $ 50. If the hurdle rate 12%
for both the projects, which option is better?
Capital Rationing
• Sometimes, firms have limited funds at disposal for
investment purposes.
• NPV may prove inadequate as it is based on the
assumption that all good projects will be accepted.
• Under situations of Capital Rationing, the following
methods may be used:
➢ Profitability Index
➢ Higher Hurdle rate
Profitability Index (PI)
• Profitability Index is NPV per rupee of investment.
NPV of Cash Flows
PI =
Initial Investment
• Compute PI for each project, pick the project starting

from the highest PI, till the capital ration is reached.
Gagan Industries has Rs 100 million to invest in the current year in the
following projects:
Project
ProjectInitialInitial
Investment
InvestmentNPV NPV PI Cumm. Investment
AC 25 5 10 5 1.00 5
BG 40 35 20 20 0.57 40
CB 5 40 5 20 0.50 80
DA 100 25 25 10 0.40 105
EE 50 50 15 15 0.30 155
FF 70 70 20 20 0.29 225
GD 35 100 20 25 0.25 325
Cost of capital rationing
Disadvantages: constraint
▪ It assumes that capital rationing applies to the current period
only and does not include the investment requirement in
subsequent periods.
▪ If investment is spread over several years, PI would be
incorrect.
▪ Does
Investment not ensure that total investment will add up to the capital60
Decisions
Pipli Pharma has Rs. 1 million allocated for Capital expenditures.
Project Investment NPV IRR (%)
(Rs 000s) (Rs 000s)
1 300 66 17.2
2 200 -4 10.7
3 250 43 16.6
4 100 14 12.1
5 100 7 11.8
6 350 63 18.0
7 400 48 13.5
Which of the following projects should the company accept to stay

within the budget? How much does the limit of budget cost the
company in terms of its market value? The opportunity cost of
capital for each project is 11%.
Project Investment NPV IRR (%) Profitability
(Rs 000s) (Rs 000s) Index
1 300 66 17.2 0.22
2 200 -4 10.7 -0.02
3 250 43 16.6 0.17
4 100 14 12.1 0.14
5 100 7 11.8 0.07
6 350 63 18.0 0.18
7 400 48 13.5 0.12
• Given the budget of Rs. 1 million, the best the company can do is
to accept Projects 1, 3, 4, and 6.
• If the company accepted all positive NPV projects, the market
value (compared to the market value under the budget limitation)
would increase by the NPV of Project 5 plus the NPV of Project 7:
Rs. 7,000 + Rs. 48,000 = Rs. 55,000. Thus, the budget limit costs
the company Rs. 55,000 in terms of its market value. 62
Higher Hurdle Rate
• Another way to deal with Capital Rationing is to consider a
higher hurdle rate.
• Consider a firm with a capital rationing constraint of Rs. 50
million and 10% as the true discount rate.
• The company has positive NPV projects involving initial
investment of Rs. 275 million.
• It increases the discount rate to 16%. At higher discount rate,
fewer projects would have positive NPV.
Factoring in Inflation
• Nominal vs. Real Interest rates:
(1+ iNominal) = (1+iReal)(1 + Inflation rate)
▪ Nominal Interest rate = 10%pa
▪ Inflation = 6% 1 + iNominal 1 .10
▪ Real Interest rate = -1= - 1 = 1.0377 - 1 = 3.78%
1 + inflation 1.06
• Nominal vs. Real Cash Flows: Nominal CFs includes

inflation. i.e. product / costs prices incorporate inflation.
1
Real Cash Flown = Nominal Cash Flow n *
(1 + inflation)
n
Cash Flows Discount Rate

Deflation
Nominal Cash Flows Nominal Rate factor
Real Cash Flows Real Rate
The following are the expected cash flows in nominal
terms on a new project: (Rs Lacs)
Year Nominal Cash Flows
0 -1500
1 115
2 125
3 136
4 144
5 185
The firm’s hurdle rate is 10% in nominal terms, while the
expected inflation rate is 2.5%. Estimate the NPV based
on Real CFs and real discount rates.
Mid-Year Discounting
Capital Budgeting under Uncertainty
• Uncertainty means that more things can
happen than will happen.
• Tools to analyze under Uncertainty:
➢Sensitivity Analysis
➢Scenario Analysis
➢Break-even Analysis
Sensitivity Analysis
• Important variables, having a bearing on the

project NPV, are identified.
• Optimistic and Pessimistic values of these
variables are assessed
• Impact of these variables on the project NPV is
analyzed one at a time .
Scenario Analysis
• If the variables are interrelated, it would be

better to evaluate changes in combination of
variables rather than one variable at a time.
Break - even Analysis
• Managers often ask “how bad sales can get

before the project begins to lose money”
• NPV analysis is done under different
assumptions of Sales.

Investment Decisions: (Capital Budgeting Techniques)

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Investment Decisions

(Capital Budgeting Techniques)

Average Investment: Average

Income Statement Cash Flow

Year Cash Flow Cumulative Cash Flow

Payback period = 4 + {(65,000 - 60,000)/30,000}*12

As the cut-off point is 2 years, Project B should be accepted over Project A

• Issues with Payback period:

(or PV of Cash Outflows)

-1000.00 300 350 400 450 500

-87.84 = NPV @ 30%

< ----------------------- =1/(1+$C$2)^A4

Net Cash Discount

The internal rate of return for this project is 19.44%

28% (22.17) (40)

Discounting Rate NPV

Discounting Rate NPV IRR:

4 -2200 Discount Rate

Which is the correct IRR?

No. of IRRs = No. of sign changes in the cash flows.

369 = 200(1+r)3 369

Year Cash Outflows Cash Inflows Net Cash Flows

Which Project will you choose?

• If there are restriction on how much a firm may raise

A (500) 100 100 150 200 400

B (500) 250 250 200 100 50

If discount rate is less

Net Present Value 65

Internal Rate of Return 85

Payback Period 67.5

Break-even Analysis 58.2

Profitability Index 35.1

Accounting Rate of Return 34.6

CF0,B- CF0,A CF1,B- CF1,A CF2,B- CF2,A CF3,B- CF3,A

If NPV B - A > 0, Project B is better than Project A

where, n = Project life

NPV(B) = -120,000 - 6,000*PVIFA(8%,40 yrs) +20,000*PVIF(8%,40 yrs)

• Compute PI for each project, pick the project starting

Which of the following projects should the company accept to stay

• Nominal vs. Real Cash Flows: Nominal CFs includes

Cash Flows Discount Rate

• Important variables, having a bearing on the

• If the variables are interrelated, it would be

• Managers often ask “how bad sales can get

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NPV(B) = -120,000 - 6,000PVIFA(8%,40 yrs) +20,000PVIF(8%,40 yrs)