k Adjusted NPV of Project X:

1 2 3 4=2*3
CFAT of
Year DF @ 16 % PV of CFAT
Project X
0 -210000 1 -210000
1 70000 0.862 60340
2 70000 0.743 52010
3 70000 0.64 44800
4 70000 0.552 38640
5 70000 0.476 33320

NPV = PV of CIFS - PV of COFs 19110

Ko = 15 %
Rf = 10 %
t = 40 %

Adjusted NPV of Project Zeta - 10 Risk Adjusted NPV of Project M

1 2 3 4=2*3
CFAT of
Year Project DF @19 % PV of CFAT
Zeta - 10
0 -1500000 1 -1500000
1 600000 0.84 504000
2 600000 0.706 423600
3 600000 0.593 355800
4 600000 0.499 299400
NPV = 1582800 -1500000 82800

Rf= 10 %
Ko= 15 %
Risk Index = B = 1.8
RADR = Rf + B (Ko – Rf)
10 % + [1.8*5%]
19%
ject earns less than RADR, Shareholders earning is less.
15 % 10
Decision Rule in case NPV method is applied
NPV is >0 , Accept the Project
NPV is <0 , Reject the Project
NPV = 0, Management will be indifferent

Decision Rule in case IRR method is applied

IRR >RADR , Accept the Project
IRR <RADR , Reject the Project
IRR = RADR, Management will be indifferent

Certainty Equivalent Coefficient (CEC) Method

Risk freeStep
Cash1 Flow = Risky Cash flow * CEC
Risk free rate of return = 6%

1 2 3 4=2*3 5
YearCFAT of Project S CEC Risk free CF DF @ 6%
0 -3400000 1 -3400000 1
1 1800000 0.8 1440000 0.943
2 2000000 0.7 1400000 0.89
3 2000000 0.5 1000000 0.84

NPV = 3443920-3400000

1 2 3 4=2*3 5
YearCFAT of Project J CEC Risk free CF DF @ 6%
0 -3300000 1 -3300000 1
1 1800000 0.9 1620000 0.943
2 1800000 0.8 1440000 0.89
3 2000000 0.7 1400000 0.84

NPV = 3985260-3400000

n that Project S is more riskier than Project J. Therefore, If Radr method is used then Project S would be a

1 2 3 4=2*3 5
YearCFAT of Project A CEC Risk free CF DF @ 5%
0 -170000 1 -170000 1
 1 90000 0.8 72000 0.952
2 100000 0.7 70000 0.907
3 110000 0.5 55000 0.864

NPV = 179554-170000

1 2 3 4=2*3 5
YearCFAT of Project B CEC Risk free CF DF @ 5%
0 -150000 1 -150000 1
1 90000 0.9 81000 0.952
2 90000 0.8 72000 0.907
3 100000 0.6 60000 0.864

NPV = 194256-150000

n that Project S is more riskier than Project J. Therefore, If Radr method is used then Project S would be a

Particulars Amount inSelling

Rs Price reduced
Labour
by 10%
Cost increases by 33.33%
Sales (Rs 40 per unit)
100000 90000 100000
Less : Material Cost-40000 -40000 -40000
Less :Labour Cost -30000 -30000 -40000
Less: Fixed Cost -20000 -20000 -20000

Profit 10000 0 0

Units 2500

Sales = Sp /unit * No of units

1 2 3 4=2*3 2
CFAT of
Year DF @ 15 % PV of CFAT CFAT of Project
Project
0 -1600000 1 -1600000 -1600000
1 500000 0.869 434500 500000
2 500000 0.756 378000 500000
3 500000 0.658 329000 500000
4 500000 0.572 286000 500000
5 500000 0.497 248500 500000
 NPV = PV of CIFS - PV of COFs76000
1676000 - 1600000 = 76000

Original Case
Sensitivity of ProjectSensitivity
Cost of Annual CIFS
500000*3.352 = 1676000
PV of CIFS 1676000 1676000 1600000
PV of COFS -1600000 -1676000 -1600000
NPV 76000 0 0

% Change in [1676000-1600000
Project Cost [1600000
/ 1600000]*100
-1676000 / 1676000]*100
[76000/1600000]*100
[-76000/1676000]*100=-4.53%
= 4.75%

% Change in cost of [17%

capital
- 15% / 15 %]*100
13.33%

1 2 3 4=2*3
CFAT of
Year DF @ 16 % PV of CFAT
Project
0 -1600000 1 -1600000
1 500000 0.869 434500
2 500000 0.756 378000
3 500000 0.658 329000
4 500000 0.572 286000
5 500000 0.497 248500

Particulars
Amount (in Rs Lakhs) Year 0
apital Investment in Project
100 for P&110
M lakhs
apital Investment in Working
40 capital 40
tal Investment = Cash Outflows
140 150

Particulars Year 1 Year 2 Year 3 Year 4

Sales unit 100000 100000 100000 100000
SP / unit 120 120 120 120
VC/unit -60 -60 -60 -60
Fixed Overheads -1500000 1500000 1500000 1500000
Rate of Depreciation
25 % on WDV25 % on WDV 25 % on WDV 25 % on WDV
age Value of Plant & Machinery
0 0 0 0
 Tax Rate 40% 40% 40% 40%
tax Cut off Rate = Discount
12% Rate 12% 12% 12%

NPV ?

1 2 3 4=2*3
Year CFAT DF@ 12% PV of CFAT
0 -14000000 1 -14000000
1 3700000 0.893 3304100
2 3450000 0.797 2749650
3 3262500 0.711 2319637.5
4 3121875 0.636 1985512.5
5 9389406 0.567 5323793.202

orking NoteCFAT
for calculation of Depreciation Amount
EBDIT = Revenue Particulars
- Cost Amount in Rs Lakhs Amount in Rs Lakhs
less DepValue of P& M 100 10
EBIT
Depreciation of the year-251 -2.5
ritten Down
less Interest
Value of P& M after Year751 Depreciation 7.5
Depreciation
EBT of the year
-18.75
2 -1.875
ritten Downless
Value
tax of P& M after Year56.25
2 Depreciation 5.625
Depreciation
EAT of the year
-14.06
3 -1.406
ritten Down
AddValue
Dep of P& M after Year42.19
3 Depreciation 4.219
Depreciation of the year-10.55
4 -1.055
ritten Down Value of P& M after Year 31.64
4 Depreciation 3.164
Depreciation of the year-7.91
5 -0.791
ritten Down Value of P& M after Year 23.73
5 Depreciation 2.373

Particulars Year 1 Year 2 Year 3 Year 4

Sales 12000000 12000000 12000000 12000000
Variable Cost-6000000 -6000000 -6000000 -6000000
Fixed Overheads-1500000 -1500000 -1500000 -1500000
EBDIT 4500000 4500000 4500000 4500000
Less Depreciation
-2500000 -1875000 -1406250 -1054688
EBIT 2000000 2625000 3093750 3445312
Interest 0 0 0 0
EBT 2000000 2625000 3093750 3445312
 Tax @ 40% -800000 -1050000 -1237500 -1378124.8
EAT 1200000 1575000 1856250 2067187.2

EAT 1200000 1575000 1856250 2067187.2

Add Depreciation2500000 1875000 1406250 1054688
p Value from the selling of
0 P& M 0 0 0
Changes in Working capital
0 0 0 0
CFAT 3700000 3450000 3262500 3121875.2

1 2 3 4=2*3
Year CFAT DF@ 12% PV of CFAT
0 -14000000 1 -14000000 -14000000
1 3700000 0.893 3304100 15682693.202
2 3450000 0.797 2749650
3 3262500 0.711 2319637.5
4 3121875 0.636 1985512.5
5 9389406 0.567 5323793.202

NPV 1682693.202

1 2 3 4=2*3
Year Decline in CFATDF@ 12% PV of Decline in CFAT
1 360000 0.893 321480 1297440
2 360000 0.797 286920
3 360000 0.711 255960
4 360000 0.636 228960
5 360000 0.567 204120

Decline in NPV 1297440

% change in NPV = Change in

(1297440
NPV / Old
/ 1682693)*100
NPV
77.10%
Particulars Year 1
Sales 11400000 12000000
Variable Cost-6000000 -6000000
Fixed Overheads-1500000 -1500000
EBDIT 3900000 4500000
Less Depreciation
-2500000 -2500000
EBIT 1400000 2000000
 Interest 0 0
EBT 1400000 2000000
Tax @ 40% -560000 -800000
EAT 840000 1200000

EAT 840000 1200000

Add Depreciation2500000 2500000
p Value from the selling of
0 P& M 0
Changes in Working capital
0 0
CFAT 3340000 3700000

Particulars
Year 1 (Old Case) Year 1
Sales 12000000 12000000
Variable Cost-6000000 -6600000
Fixed Overheads-1500000 -1500000
EBDIT 4500000 3900000
Less Depreciation
-2500000 -2500000
EBIT 2000000 1400000
Interest 0 0
EBT 2000000 1400000
Tax @ 40% -800000 -560000
EAT 1200000 840000

EAT 1200000 840000

Add Depreciation2500000 2500000
p Value from the selling of
0 P& M 0
Changes in Working capital
0 0
CFAT 3700000 3340000

ScenarioProbability
CFAT(pi)OR NPV in Rs Cr pi* Ri in Rs R - R~
High growth 0.2 20 4 9.5
Average Growth 0.5 10 5 -0.5
Low Growth 0.3 5 1.5 -5.5
E (R) = ∑pi* Ri 10.5
E (R) = R~
 Situation
NPV of Project X Pi Situation
1 3000 0.1 1
2 6000 0.4 2
3 12000 0.4 3
4 15000 0.1 4

Let NPV of Project

Cash outflow
X = x of Project X RS 30000 Let NPV of Project Y =
Project X
Situation Pi NPV of Project X =x Pi*x x-x~
1 0.1 3000 300 -6000
2 0.4 6000 2400 -3000
3 0.4 12000 4800 3000
4 0.1 15000 1500 6000
Expected NPV = x~ 9000

CV = Std Deviation (σ) / Expec

Project Y
Situation Pi NPV of Project Y = y Pi*y y-y~
1 - Very High 0.2 3000 600 -6000
2 - High 0.3 6000 1800 -3000
3 - Ave 0.3 12000 3600 3000
4 - Low growth 0.2 15000 3000 6000
Expected NPV = y~ 9000

CV = Std Deviation (σ) / Expec

ility Index = PV of CIFsNPV
/ PV=ofPvCOFs
of CIFS - PV of COFS
PV of CIFS = NPV + PV of COFS
Project X Project Y
NPV 9000 9000
PV of COFS 30000 36000
PV of CIFS 39000 45000
PI 39000 / 30000 45000/36000
1.3 1.25
 Cash OutflowsRs 5000000
Life of the Project
3 years

Expected
Year CFAT (in Rs Lakhs)
DF @ PV
6%of Expected CFAT (in Rs Lakhs)
0 -50 1 -50
1 27 0.943 25.461
2 29.3 0.89 26.077
3 27.9 0.84 23.436
Expected NPV 74.97 - 50 =24.97
Expected CFAT of Year 1

Situation Pi CFAT (in Rs Lakhs) Expected CFAT y1 - y1~

1 0.1 14 1.4 -13
2 0.2 18 3.6 -9
3 0.4 25 10 -2
4 0.3 40 12 13
Expected CFAT 27

Expected CFAT of Year 2

Situation Pi CFAT (in Rs Lakhs) Expected CFAT y2- y2~

1 0.1 15 1.5 -14.3
2 0.3 20 6 -9.3
3 0.4 32 12.8 2.7
4 0.2 45 9 15.7
Expected CFAT 29.3

Expected CFAT of Year 3

Situation Pi CFAT (in Rs Lakhs) Expected CFAT y3- y3~

1 0.2 18 3.6 -9.9
2 0.5 25 12.5 -2.9
3 0.2 35 7 7.1
4 0.1 48 4.8 20.1
Expected CFAT 27.9

Year Variance
 1 85.4
2 98.61
3 74.29

Path year 1DF @ 10% for yearPV1 of CFAT of Year1 year 2

1 50000 0.909 45450 24000
2 50000 0.909 45450 32000
3 50000 0.909 45450 44000
4 60000 0.909 54540 40000
5 60000 0.909 54540 50000
6 60000 0.909 54540 60000
 Risk Adjusted NPV of Project Y:
1 2 3
CFAT of Project
Year DF @ 14 %
X
0 -120000 1
1 42000 0.877
2 42000 0.77
3 42000 0.675
4 42000 0.592
5 42000 0.519

NPV = PV of CIFS - PV of COFs

144186- 120000
24186

Risk Adjusted NPV of Project Meta - 10

1 2 3 4=2*3

CFAT of Project
Year DF @15 % PV of CFAT
Meta - 10

0 -1100000 1 -1100000
1 600000 0.87 522000
2 400000 0.756 302400
3 500000 0.658 329000
4 200000 0.571 114200
NPV = 12676000 -1100000 167600

Rf= 10 %
Ko= 15 %
Risk Index = B = 1
RADR = Rf + B (Ko – Rf)
10 % + [1*5%]
15%
 6=4*5
PV of Risk free Cash flow
-3400000
1357920
1246000
840000

43920

6=4*5
PV of Risk free Cash flow
-3300000
1527660
1281600
1176000

685260

used then Project S would be analyzed with higher RADR.

6=4*5
PV of Risk free CFs
-170000
 68544
63490
47520

9554

6=4*5
PV of Risk free CFs
-150000
77112
65304
51840

44256

used then Project S would be analyzed with higher RADR.

Material
Reduction
Cost in
increases
sales units
by 25
by%
250 units or units gets reduced by 10%
100000 90000
-50000 -36000
-30000 -27000
-20000 -20000

0 7000

3 4=2*3
DF @ 17 % PV of CFAT
1 -1600000
0.855 427500
0.731 365500
0.624 312000
0.534 267000
0.456 228000
 0

Sensitivity of Cost of Capital

[17% - 15% / 15 %]*100

13.33%

Year 5
100000
120
-60
1500000
25 % on WDV
WDV at the end of 5th year
 40%
12%

Year 5
12000000
-6000000
-1500000
4500000
-791015
3708985
0
3708985
-1483594
2225391

2225391
791015
2373000
4000000
9389406
 (R - R~)^2 Pi * (R - R~)^2
90.25 18.05
0.25 0.125
30.25 9.075

Variance (σ^2) ∑Pi * (R - R~)^2

27.25
Std Deviation (σ) 5.22
 NPV of Project Y Pi
3000 0.2
6000 0.3
12000 0.3
15000 0.2

Let NPV of Project YCash

= y outflow of Project X RS 36000

(x-x~)^2 Pi * (x-x~)^2
36000000 3600000
9000000 3600000
9000000 3600000
36000000 3600000
Variance (σ^2) ∑Pi * (x - x~)^2
14400000
Std Deviation (σ) / 3795
CV = Std Deviation (σ) / Expected NPV42

(y-y~)^2 Pi * (y-y~)^2
36000000 7200000
9000000 2700000
9000000 2700000
36000000 7200000
Variance (σ^2) ∑Pi * (x - x~)^2
19800000
Std Deviation (σ) 4450
CV = Std Deviation (σ) / Expected NPV49
 (y1 - y1~)^2 Pi * (y1 - y1~)^2
169 16.9
81 16.2
4 1.6
169 50.7
Variance 85.4
Std Deviation 9.24

(y2 - y2~)^2 Pi * (y2 - y2~)^2

204.49 20.449
86.49 25.947
7.29 2.916
246.49 49.298
Variance 98.61
Std Deviation 9.93

(y3 - y3~)^2 Pi * (y3 - y3~)^2

98.0100000000001 19.602
8.41000000000001 4.20500000000001
50.41 10.082
404.01 40.401
Variance 74.29
Std Deviation 8.62
DF @ 10% for year 2PV of CFAT of Year 2 Total PV of CIFS COF
0.826 19824 65274 80000
0.826 26432 71882 80000
0.826 36344 81794 80000
0.826 33040 87580 80000
0.826 41300 95840 80000
0.826 49560 104100 80000
 Risk Adjusted NPV of Project Z:
4=2*3 1 2 3
DF @
PV of CFAT Year CFAT of Project X
12 %
-120000 0 -100000 1
36834 1 30000 0.893
32340 2 30000 0.797
28350 3 30000 0.712
24864 4 30000 0.636
21798 5 30000 0.567

24186 NPV = PV of CIFS - PV of COFs

108150- 100000
8150

Risk Adjusted NPV of Project Neta - 10

1 2 3 4=2*3

CFAT of Project PV of
Year DF @13 %
Neta - 10 CFAT

0 -1900000 1 -2E+06
1 400000 0.885 354000
2 600000 0.783 469800
3 800000 0.693 554400
4 1200000 0.613 735600
NPV = 2113800 -1900000 213800

Rf= 10 %
Ko= 15 %
Risk Index = B = 0.6
RADR = Rf + B (Ko – Rf)
10 % + [0.6*5%]
13%
 NPV Joint Probability Expected NPV
-14726 0.08 -1178.08
-8118 0.12 -974.16
1794 0.2 358.8
7580 0.24 1819.2
15840 0.3 4752
24100 0.06 1446
Expected NPV 6223.76
 4=2*3
PV of
CFAT
-100000
26790
23910
21360
19080
17010

8150
1. Sunlight Ltd has Investible funds of Rs 70 Cr. The company is thinking about the investment proposals.
Project Initial Investment (in Rs Cr)
X 10
Y 24
Z 32
M 22
J 18

NPV method especially in case of Indvisible projects

Project Initial Investment (in Rs Cr)

M 22
J 18
Y 24
64

2. Skylights Ltd has Investible funds of Rs 7 Cr. The company is thinking about the investment proposals. All these projects
Project Initial Investment (in Rs Cr)
A 3
B 2
C 2.5
D 6

Project Initial Investment (in Rs Cr)

C 2.5
D 4.5
7

3. Manav Ltd
Limited Funds 2020000
Cost of Capital 10%

Projects Initial Cash Outtflow (in Rs Lakh

I 1
II 2
III 3
IV 4
V 5
VI 12

Total Funds Available 20.2

Assuming that Projects are Divisible

Project Initial Investment (in Rs Cr)

I 1
II 2
III 3
 IV 4
V 5
VI 5.2
20.2

Projects Initial Cash Outtflow (in Rs Lakh

I 1
II 2
III 3
IV 4
V 5
VI 12

Total Funds Available 20.2

Assuming that Projects are Indivisible
Project Initial Investment (in Rs Cr)
VI 12
V 5
III 3
20

5. Appllo Industries
Funds Available Rs 10L
Cost of Capital 10%
No Capital Rationing in Future
No Alternative Investment for Surplus Funds
Project Initial Cost (in Rs Lakhs)
A 3.5
B 4
C 6.5
D 4.8
E 2.3

Optimum Investment Plan

ble and no specific method is specified, we will select projects based on their NPV Ranking
Project Initial Cost (in Rs Lakhs)
C 6.5
D 4.8
B 4
A 3.5
E 2.3
 Project Initial Cost (in Rs Lakhs)
C 6.5
D 4.8
B 4
A 3.5
E 2.3

Funds Available Rs 10L

Optimal Selection of Projects

Project Initial Cost

C+D 6.5 + 4.8

C+B 6.5 + 4

C+A 6.5 + 3.5

10

6. Mahindra Ltd
Funds Available Rs 10.10 L
Cost of Capital 10%
Assuming No Capital Rationing in Future
Assuming No Alternative Investment for Surplus Funds

Project Initial Cost (in Rs Lakhs)

A 0.5
B 1
C 1.5
D 2
E 2.5
F 6
Optimal Selection of Projects
no specific method is specified, we will use PI based Ranking for selection of projects in case of Divisible projects.
Funds Available Rs 10.10 L

Project Initial Cost (in Rs Lakhs)

A 0.5
B 1
C 1.5
D 2
E 2.5
F 6

Rs 10.10 L
Project Initial Cost (in Rs Lakhs)
A 0.5
B 1
C 1.5
 D 2
E 2.5
F in part upto 2.6 Lakhs 2.6
10.1

Optimal Selection of Projects

o specific method is specified, we will use NPV based Ranking for selection of projects in case of Indivisible projects.
Funds Available Rs 10.10 L

Project Initial Cost (in Rs Lakhs)

F 6
E 2.5
D 2
C 1.5
B 1
A 0.5

Selection of Projects Total Initial Cost

F + E +C 6+ 2.5 + 1.5 = 10
F +E +B+A 10
F +D+C+A 6+ 2 + 1.5 + 0.5 = 10
F + D + B +A 6+ 2 + 1 +0.5 = 9.5
F +C +B +A 6+ 1.5 +1 +0.5 = 9

E + D +C + B +A 7.5

Project Initial Cost (in Rs Lakhs)

F 6
E 2.5
D 2
C 1.5
B 1
A 0.5

7. Skylark Ltd
Funds Available Rs 22 Lakhs
Assuming No Capital Rationing in Future
All Projects are Indivisible

Project C and D cant be selected together

Project A and G can be selected together
Any Uninvested amount in the year 1 would result in a negative NPV of one rupee- one Rupee for every 10 Rupees of the u
Negative Npv on Uninvested amount = 10 % of Uninvested Amount
Project PV cash Outflow (in Rs Lakhs)
A 3
B 6
C 10
D 9
E 4
F 10
G 10

Project C and D cant be selected together

Project A and G can be selected together
Any Uninvested amount in the year 1 would result in a negative NPV of one rupee- one Rupee for every 10 Rupees of the u
Negative Npv on Uninvested amount = 10 % of Uninvested Amount
Available funds 22
Project Initial Outflow (in Rs Lakhs)
C 8
B 5
A 3
D 6
E 4
F 8
G 8

Possible combination of Projects Total Initial Cost

C +B +E 17
C +B +F 21

B +A+G+E 20
B+D+E 15
B+D+F 19
B+E+F 17

A+G+D+E 21

D+E+F 18

8
Funds Available 400000
Cost of Capital 12%
Projects Initial Investment (in Rs)
A 300000
B 200000
C 200000
D 100000
E 300000

project A
 Yr CFAT
0 -300000
1 187600
2 187600

Funds Available 400000

Projects Initial Investment (in Rs)
E 300000
C 200000
B 200000
A 300000
D 100000

Funds Available 500000

Projects Initial Investment (in Rs)
E 300000
C 200000
B 200000
A 300000
D 100000

Funds Available 400000

Projects Initial Investment (in Rs)
E 300000
C 200000
B 200000
D 100000
A 300000

Funds Available 500000

Projects Initial Investment (in Rs)
E 300000
C 200000
B 200000
D 100000
A 300000
4 Vindhyachal Ltd

Funds Available Rs 8 Lakhs

Cost of Capital 10%

Project X
Yr CFAT (in Rs Lakhs)
0 -6
1 -2
1 12
2 4

NPVI = NPV /Initial Cost of Investment

Project Z
Yr CFAT (in Rs Lakhs)
0 -6
1 -6
1 4
2 20

NPVI = NPV /Initial Cost of Investment

Projects Initial Cost of Investment

X 6
Y 4
Z 6

Funds Available 8 Lakhs

Projects Initial Cost of Investment
X 6
Y 4
Z 6

Selection of projects based on PI ranking Total Initial Cost

X 6
Y in part upto 2 Lakhs 2
8
Selection of projects based on PI ranking Total Initial Cost

Y 4
Z in part upto 4 Lakhs 4
8
s thinking about the investment proposals.
NPV (in Rs Cr) Rank based on NPV
6 5
18 4
20 3
30 1
20 2

NPV (in Rs Cr)

30
20
18
68

thinking about the investment proposals. All these projects are divisible
NPV (in Rs Cr) PI
0.6 1.2
0.5 1.25
1.5 1.6
1.8 1.3

NPV (in Rs Cr)

1.5
1.2
2.7

Pv Of CIFS NPV
10 9
18 16
24 21
28 24
32.5 27.5
76.8 64.8

NPV (in Rs Cr)

9
16
21
 24
27.5
28.08
125.58

Pv Of CIFS NPV
10 9
18 16
24 21
28 24
32.5 27.5
76.8 64.8

NPV (in Rs Cr)

64.8
27.5
21
113.3

NPV @ 10% (in Rs Lakhs) Project type

1.75 Indivisible
2.25 Indivisible
3.8 Indivisible
3.15 Indivisible
0.9 Indivisible

heir NPV Ranking

NPV @ 10% (in Rs Lakhs) Project type
3.8 Indivisible
3.15 Indivisible
2.25 Indivisible
1.75 Indivisible
0.9 Indivisible
 NPV @ 10% (in Rs Lakhs) Rank based on NPV
3.8 1
3.15 2
2.25 3
1.75 4
0.9 5

Total NPV Remark

3.8 Not feasible

3.8 Not feasible

3.8 + 1.75 Best Option

5.55

PV of CIF (in Rs Lakhs) NPV

5 4.5
9 8
12 10.5
14 12
16.25 13.75
38.4 32.4

of projects in case of Divisible projects.

NPV Rank based on PI

4.5 1
8 2
10.5 3
12 4
13.75 5
32.4 6

NPV
4.5
8
10.5
 12
13.75
14.04
62.79

of projects in case of Indivisible projects.

NPV Rank based on NPV

32.4 1
13.75 2
12 3
10.5 4
8 5
4.5 6

Total NPV
32.4 + 13.75 +10.5 = 56.65
58.65
32.4+ 12 +10.5+4.5 = 59.4
32.4+ 12 +8+4.5 = 56.9
32.4+ 10.5 +8+4.5 = 55.4

48.75

NPV Rank based on NPV

14 1
13.75 2
12 3
10.5 4
8 5
4.5 6

e NPV of one rupee- one Rupee for every 10 Rupees of the uninvested amount.
 Initial Outflow (in Rs Lakhs) NPV
3 12
5 18
8 20
6 6
4 5
8 5
8 -2

e NPV of one rupee- one Rupee for every 10 Rupees of the uninvested amount.

NPV Rank based on NPV

20 1
18 2
12 3
6 4
5 5
5 6
-2 7

Total NPV Uninvested Amount

43 5
43 1

33 2
33 7
29 3
28 5

21 1

16 4

Life in years Annual CFAT

2 187600
5 66000
3 100000
9 20000
10 66000
 DF@12% PV of CFAT
1
0.893
0.797

NPV Rank based on NPV

72900 1
40200 2
37930 3
17044 4
6560 5

NPV Rank based on NPV

72900 1
40200 2
37930 3
17044 4
6560 5

PI Rank based on PI
1.24 1
1.20 2
1.19 3
1.07 4
1.06 5

PI Rank based on PI
1.24 1
1.20 2
1.19 3
1.07 4
1.06 5
 DF@10% PV of CFAT
1 -6
0.909 -1.818
0.909 10.908
0.826 3.304
NPV 6.394

PV of CIFS 14.212
PV of COFS 7.818
PI 1.82
NPVI = NPV /Initial Cost of Investment 1.07

DF@10% PV of CFAT
1 -6
0.909 -5.454
0.909 3.636
0.826 16.52
NPV 8.702

PV of CIFS 20.156
PV of COFS 11.454
PI 1.76
NPVI = NPV /Initial Cost of Investment 1.45

NPV PI
6.394 1.82
6.0622 1.78
8.702 1.76

PI Rank Based on PI
1.82 1
1.78 2
1.76 3

Total NPV

6.394
3.0311
9.4251
Total NPV

6.0622
5.801
11.8632
Project Initial Investment (in Rs CrNPV (in Rs Cr)
M 22 30
J 18 20
X 10 6
50 56

Rank based on PI
4
3
1
2

Rank based on NPV PI Rank based on PI

6 10 1
5 9 2
4 8 3
3 7 4
2 6.5 5
1 6.4 6

Nothing is specified about projects Indivisible

Nothing is specified about which Ranking to use, PI b NPV

It is specified that projects are Divisible

Nothing is specified about which Ranking to use, PI b PI
Rank based on NPV
6
5
4
3
2
1

Project Initial Investment (in Rs CrNPV (in Rs Cr)

VI 12 64.8
V 5 27.5
II 2 16
I 1 9
20 117.3

Rank based on NPV Indivisible

4
3
1
2
5
Trial & error

Selection of projects Initial Cost

Rank based on NPV C+A 6.5 + 3.5 = 10
1 D +B 4.8 + 4 = 8.8
2 D+ A 4.8+3.5 = 8.3
3 B+A+E 9.8
4 A+E 5.8
5
Rank based on NPV PI Rank based on PI
6 10 1
5 9 2
4 8 3
3 7 4
2 6.5 5
1 6.4 6

Trial & error

A
 Trial & error for various combination of projects

Selection of Projects Total Initial Cost

F+E+C 10
F + E + B +A 10
F+D+ C+A 10
F+C+B+A 9
E+D+C+B+A 7.5

F+E+C 10
F + E + B +A 10
F+D+ C+A 10
F+C+B+A 9
E+D+C+B+A 7.5

ted amount.
 Rank based on NPV
3
2
1
4
5
6
7

ted amount.

Negative NPV because of uninvested amount Net NPV

0.5 42.5
0.1 42.9

0.2 32.8
0.7 32.3
0.3 28.7
0.5 27.5

0.1 20.9

0.4 15.6

PVIF of Annuity or DF of Annuity PV of CIFS PV of COFS

1.69 317044 300000
3.605 237930 200000
2.402 240200 200000
5.328 106560 100000
5.65 372900 300000

Project B
 Yr CFAT DF@12%
0 -200000 1
1 66000 0.893
2 66000 0.797
3 66000 0.712
4 66000 0.636
5 66000 0.567

Trial & Error

Selection of projects Total Initial Cost Total NPV

E+D 4 79460

C+B 4 78130
C+D 3 46760

B+D 3 44490

A+D 4 23604

Selection of projects Total Initial Cost Total NPV

E+C 5 113100
E+B 5 110830

C+B+D 5 84690
C+A 5 57244

B+A
5 54974
A+D 4 23604

Selection of projects Total Initial Cost Total NPV

E 300000 72900
C in part upto 1 Lakh 100000 20100
400000 93000

Selection of projects Total Initial Cost Total NPV

E 300000 72900
C 200000 40200
500000 113100
Project Y
Yr CFAT (in Rs Lakhs) DF@10%
0 -4 1
1 -4.2 0.909
1 8 0.909
2 8 0.826
NPV

PV of CIFS
PV of COFS
PI
NPVI = NPV /Initial Cost of Investment

Rank Based on PI NPVI Rank Based on NPVI

1 1.07 3
2 1.52 1
3 1.45 2
Project Initial Investment (in NPV (in Rs Cr)
M 22 30
J 18 20
Z 32 20
72 70
 Type of projects Indivisible
Divisible

Selecttion of Project on what basis

Rank based on NPV

Rank based onPI
Rank based on NPVI

Funds Available
Cost of Capital
No Capital Rationing in Future

Rank based on NPV

Total NPV
3.8+ 1.75 = 5.55
3.15+2.15= 5.40
3.15+1.75 = 4.70
4.9
2.65
Total NPV
56.65
58.65
59.4
55.4
48.75

38.25
40.25
41
37
48.75
 NPV Rank based on NPV PI Rank based on PI
17044 4 1.06 5
37930 3 1.19 3
40200 2 1.20 2
6560 5 1.07 4
72900 1 1.24 1
 PV of CFAT
-4
-3.818
7.272
6.608
6.0622

13.88
7.818
1.78
1.52

sed on NPVI
Project Initial Cost (in Rs Lakhs) NPV
F 6 14
E 2.5 13.75
D 2 12
C 1.5 10.5
B 1 8
A 0.5 4.5
Rank based on NPV
1
2
3
4
5
6
3. Manav Ltd
Limited Fu 2020000
Cost of Cap 10%

Projects Initial Cash OuPv Of CIFS NPV Rank base PI Rank based on PI
I 1 10 9 6 10 1
II 2 18 16 5 9 2
III 3 24 21 4 8 3
IV 4 28 24 3 7 4
V 5 32.5 27.5 2 6.5 5
VI 12 76.8 64.8 1 6.4 6

Projects Initial Cash OuPv Of CIFS NPV Rank based on NPV

VI 12 76.8 64.8 1
V 5 32.5 27.5 2
IV 4 28 24 3
III 3 24 21 4
II 2 18 16 5
I 1 10 9 6

Total Fund 20.2

Assuming that Projects are Indivisible
Project Initial InvestmNPV (in Rs Cr) Project Initial Inv NPV (in Rs Cr)
VI 12 64.8 VI 12 64.8
V 5 27.5 V 5 27.5
III 3 21 II 2 16
20 113.3 I 1 9
VI 12 VI + V + III
V 5 VI + V + II+I
IV 4
III 3
II 2
I 1