(a) Payback Period

A
Investment

Year
1
2
3
4
5

Payback Period
4

Payback period

(d) Net Present Valu

If NPV is Positive -->

If NPV is Negative -->
If NPV is 0 -->

Year
1
2
3
4
5

NPV = Sum of PV cash inflo

Sum of Cash inflows

Initial Investment
NPV

0
1
 2
3
4
5

IRR
PI
PI = Project Cash inflows/

3 (a) (ii) r = IRR = 21%

A

Year
1
2
3
4
5

PI = Project Cash inflows/

Sum of Cash inflows

Initial Investment
PI

Profitability Index/

If PI is greater than 1
If PI is less than 1
At IRR, PI will be 1

PI = Project Cash inflows/

3 (a) (iii) Since projects are mutually exclusiv

a) Payback Period
B
200,000.00 million Investment 200,000.00

Cumulative Cash
Cash Inflow (₹ mn) Inflow (₹ mn) Year Cash Inflow (₹ mn)
50,000.00 50,000.00 1 80,000.00
50,000.00 100,000.00 2 80,000.00
50,000.00 150,000.00 3 80,000.00
50,000.00 200,000.00 4 30,000.00
190,000.00 390,000.00

Payback Period
2 yrs + 6.0

4 yrs Payback period 2 years 6 months

) Net Present Value

Accept Project
Reject Project
Compare IRR rates

PV of Cash Inflow @
Cash Inflow (₹ mn) 10% [CF/(1+r)^n] Year Cash Inflow (₹ mn)
50,000.00 45,454.55 1 80,000.00
50,000.00 41,322.31 2 80,000.00
50,000.00 37,565.74 3 80,000.00
50,000.00 34,150.67 4 30,000.00
190,000.00 117,975.05

V = Sum of PV cash inflows - PV of Cash outflow NPV = Sum of PV cash inflows - PV of Cash outflow

276,468.32 Sum of Cash inflows 219,438.56

200,000.00 Initial Investment 200,000.00
76,468.32 NPV 19,438.56

-200000 0 -200000
50,000.00 1 80,000.00
 50,000.00 2 80,000.00
50,000.00 3 80,000.00
50,000.00 4 30,000.00
190,000.00
IRR 15%

21%
1.38 PI 1.10
= Project Cash inflows/ Project Cash Outflows

r = IRR = 15%
B

PV of Cash Inflow @
Cash Inflow (₹ mn) 21% [CF/(1+r)^n] Year Cash Inflow (₹ mn)
50,000.00 41,322.31 1 80,000.00
50,000.00 34,150.67 2 80,000.00
50,000.00 28,223.70 3 80,000.00
50,000.00 23,325.37 4 30,000.00
190,000.00 73,253.22

= Project Cash inflows/ Project Cash Outflows PI = Project Cash inflows/ Project Cash Outflows

200,275.28 Sum of Cash inflows 199,810.61

200,000.00 Initial Investment 200,000.00
1.00 PI 1.00

rofitability Index/ Benefit Cost Ratio

Project is accepted
Project is rejected

= Project Cash inflows/ Project Cash Outflows

s are mutually exclusive, the company will invest in Project A. NPV of Project A is higher than that of Project B & C.
 C
million Investment 200,000.00 million

Cumulative Cash Cumulative Cash

Inflow (₹ mn) Year Cash Inflow (₹ mn) Inflow (₹ mn)
80,000.00 1 100,000.00 100,000.00
160,000.00 2 100,000.00 200,000.00
240,000.00 3 10,000.00 210,000.00
270,000.00

Payback Period
2 yrs

Payback period 2 years

C
PV of Cash
PV of Cash Inflow @ Inflow @ 10%
10% [CF/(1+r)^n] Year Cash Inflow (₹ mn) [CF/(1+r)^n]
72,727.27 1 100,000.00 90,909.09
66,115.70 2 100,000.00 82,644.63
60,105.18 3 10,000.00 7,513.15
20,490.40 -

nflows - PV of Cash outflow NPV = Sum of PV cash inflows - PV of Cash outflow

Sum of Cash inflows 181,066.87

Initial Investment 200,000.00
NPV -18,933.13

0 -200000
1 100,000.00
 2 100,000.00
3 10,000.00

IRR 3%

PI 0.91

r = IRR = 3%
C
PV of Cash
PV of Cash Inflow @ Inflow @ 3% [CF/
15% [CF/(1+r)^n] Year Cash Inflow (₹ mn) (1+r)^n]
69,565.22 1 100,000.00 97,087.38
60,491.49 2 100,000.00 94,259.59
52,601.30 3 10,000.00 9,151.42
17,152.60 -

ws/ Project Cash Outflows PI = Project Cash inflows/ Project Cash Outflows

Sum of Cash inflows 200,498.39

Initial Investment 200,000.00
PI 1.00