FINALS: TASK PERFORMANCE

1. Calculate the NPV below using formula approach. Show the solutions. Interpret the data. (17 points)

Wacc for both project 8%

Initial Cost
Year 0 1 2
Project S -1700 200 300
Project T -1700 200 400
Project I -1700 600 500

Computation:
NPVs = 11891% or 118.91
NPVt = 50497% or 504.97
NPVi = -10967% or - 109.67

Solution using Formula:

NPVs = -1700 200/(1.08)^1+ 300/(1.08)^2 + 400/(1.08)^3 + 700
NPVs = 118.91

NPVt = -1700 200/(1.08)^1 + 400(1.08)^2 + 600/(1. 08)^3 + 80

NPVt = 504.97

NPVi = -1700 600/(1.08).0^1 + 500/(1.08)^2 + 400/(1.08)^3 +

NPVi = -109.67

Interpretation:
Project S and T are accepted if the project is independent, with the exception of project I, which does not exceed zero.
If the project is Mutually exclusive project T is accepted because it has a highest positive NPV

2.Get the Internal Rate of Return (IRR) for the above table using excel formula. (3 points)

Project S 0 1 2

-1700 200 300

181.818181818182
247.933884297521
300.525920360631
478.109418755549
0
0
lRRs = -2%

Project T 0 1 2

-1700 200 400

172.413793103448
297.265160523187
384.39460412481
441.83287830438
0
0
IRRt = 6%

Project I 0 1 2

-1700 600 500

571.428571428571
453.514739229025
345.53503941259
246.810742437565
0
0
IRRi = 3%
3.Refer to the statement below to compute the Payback Period and answer the questions. Show the solution.

Company S invests P500,000 in a project that is expected to save the company P100,000 each year.Consider another project t
company an incremental P50,000 each year for the next 10 years at P500,000. How long will it take to pay the investment bac

Company S invests P500,000 in a project that is expected to save the company P100,000 each year.Consider another project t
company an incremental P50,000 each year for the next 10 years at P500,000. How long will it take to pay the investment bac

Answer for the first investment:

Cost of new project 500,000
Net annual savings 100,000

Payback Period= Initial Investment/ Cash flow per year

Payback Period= 500,000/100,000
Payback Period= 5 years

Answer for the second investment:

cost of a project 200,000
Incremental cost for a year 50,000

Payback Period= Initial Investment/ Cash flow per year

Payback Period= 200,000/50,000
Payback Period= 4 years

which investment is better?

As a result, the shorter the payback period, the better the project; hence, the 4 year payback period is a superior investment.
 3 4 5 Total Inflows
400 700 800 2,400
600 800 900 2,900
400 300 100 1,900

0/(1.08)^2 + 400/(1.08)^3 + 700/(1.08)^4 + 800/(1.08) ^5

00(1.08)^2 + 600/(1. 08)^3 + 800/(1.08)^4 + 900/(1.08)^5

500/(1.08)^2 + 400/(1.08)^3 + 300/(1.08)^4 + 100/(1.08)^5

h does not exceed zero.

3 4

400 700
 3 4

600 800

3 4

400 300

w the solution.

ear.Consider another project that costs P200,000 with no associated cash savings that will make the
ake to pay the investment back for both projects? Which project is a better investment? (10 points)

year.Consider another project that costs P200,000 with no associated cash savings that will make the
take to pay the investment back for both projects? Which project is a better investment? (10 points)
riod is a superior investment.