MUHAMMAD SA

01-112211-041
6A

NPV ANALYSIS
WACC=12%
Project A
Cost: $40,000
Cash
Year
Flows ($) DISC FACTOR N PV OF Cashflows
1 8,000 0.892857142857 1 7142.8571428572
2 14,000 0.797193877551 2 11160.714285714
3 13,000 0.711780247813 3 9253.1432215743
4 12,000 0.635518078405 4 7626.216940858
5 11,000 0.567426855719 5 6241.6954129046
6 10,000 0.506631121177 6 5066.3112117732

COST -40,000
NPV OF Project A 6,491

Project B
Cost: $ 20,000

Cash
Year
Flow ($) DISC FACTOR N PV OF Cashflows
1 7,000 0.892857142857 1 6250
2 13,000 0.797193877551 2 10363.520408163
3 12,000 0.711780247813 3 8541.3629737609

COST 20,000
NPV OF Project B 5,155

NOTE: PROJECT A WILL BE ACCEPTED AS ITS NPV IS HIGHER THEN PROJ B

REPLACEMENT CHAIN TECHNIQUE

Cash
Year
Flow ($) DISC FACTOR N PV OF Cashflows
1 7,000
2 13,000
3 12,000
3 -20,000
4 7,000
5 13,000
6 12,000
0.892857142857 1 6250
0.797193877551 2 10363.520408163
0.711780247813 3 8541.3629737609
0.711780247813 3 -14235.60495627
0.635518078405 4 4448.6265488338
0.567426855719 5 7376.5491243418
0.506631121177 6 6079.5734541279

NPV OF Project B 8,824

NOTE: NOW PROJECT B WILL BE ACCEPTED AS ITS NPV IS HIGHER THEN PROJ A

EQUIVALENT ANNUAL ANNUITY

FORMULAE:
Pva= R*(1-(1+I)^-n)/I
Project A
Pva=NPV= 6491
N= 6
I= 12%
R 1578.778

Pva= R*(1-(1+I)^-n)/I
Project B
Pva=NPV= 5155
N= 3
I= 12%
R 2146.279

NOTE: NOW PROJECT B WILL BE ACCEPTED AS ITS EQUIVALENT ANNUAL ANNU

MUHAMMAD SAAD ATEEQ
01-112211-041

GHER THEN PROJ B

IS HIGHER THEN PROJ A

IVALENT ANNUAL ANNUITY IS HIGHER THEN PROJ A