Chapter 5

Capital Budgeting

የካፒታሌ በጀት ማውጣት

 Project Appraisal
የፕሮጀክት ግምገማ
• Projects can be appraised from the
view point of their beneficiaries or
losers [financial analysis] or from
the viewpoint of the entire society
[economic analysis]
• ፕሮጀክቶች ከተጠቃሚዎቻቸው ወይም ከተሸናፊዎቻቸው
(የፋይናንስ ትንተና) ወይም ከመሊው ህብረተሰብ እይታ
አንጻር ሉገመገሙ ይችሊለ (የኢኮኖሚ ትንታኔ)

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 Project Appraisal methods
የፕሮጀክት ግምገማ ዘዴዎች
The most common methods analysing the
financial feasibility of a project are:
የፕሮጀክቱን የፋይናንስ አዋጭነት በጣም የተሇመደ ዘዴዎች የሚከተለት ናቸው-
• Return on investment ወዯ ኢንቨስትመንት መመሇስ
• Payback period የመመሇሻ ጊዜ
• Net present value የተጣራ የአሁን ዋጋ
• Internal Rate of Return የውስጥ ተመሊሽ መጠን
• Benefit cost ratio የጥቅም ዋጋ ጥምርታ
• Discounted pay back period የመመሇሻ ጊዜ ቅናሽ
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• Non discounted methods ያሌተቀነሱ ዘዴዎች
• Return on investment ወዯ ኢንቨስትመንት
መመሇስ
• Payback period የመመሇሻ ጊዜ
• Discounted methods ቅናሽ ዘዴዎች
• Net present value method የተጣራ የአሁን ዋጋ ዘዴ
• Benefit cost ratio የጥቅም ዋጋ ጥምርታ
• Internal Rate of Return የውስጥ ተመሊሽ መጠን

• Discounted Payback Period የመመሇሻ ክፍያ ቅናሽ ጊዜ

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• Discounting is a technique or a process by which one can reduce future
benefits and costs to their present worth or present value.
• የዋጋ ቅናሽ አንድ ሰው የወዯፊት ጥቅሞችን እና ወጪዎችን አሁን ባሇው ዋጋ ወይም አሁን ባሇው ዋጋ የሚቀንስበት ዘዴ ወይም ሂዯት ነው።

• This is the method used to revalue future cost and benefit flows from
project into present day values so that they are comparable and can be
added together.
• ይህ ከፕሮጀክቶች የሚወጣውን ወጪ እና ጥቅማጥቅሞችን ወዯ አሁኑ ጊዜ ዋጋዎች ሇመገመት
የሚያገሇግሌ ዘዴ ሲሆን ይህም ተመጣጣኝ እና አንድ ሊይ ሉጨመሩ ይችሊለ.
• As compounding asks “what is the future worth of a known present
amount”? discounting asks “what is the present worth of a known future
amount”?
ይህ ከፕሮጀክቶች የሚወጣውን ፊሌም እና ጥቅማጥቅሞችን ወዯ አሁኑ ጊዜ ዋጋዎች
ሇመገመት የሚያገሇግሌ ሲሆን ይህም ተመጣጣኝ እና አንድ ሊይ ሉጨመሩ ይችሊለ.

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• The factor used to discount future costs and
benefits is called the discount rate (r) and is
usually expressed as a percentage.
• የወዯፊት ወጪዎችን እና ጥቅማ ጥቅሞችን ሇመቀነስ ጥቅም
ሊይ የዋሇው የቅናሽ ተመን (r) ተብል የሚጠራ ሲሆን
ብዙውን ጊዜ እንዯ መቶኛ ይገሇጻሌ።
• The discount rate is usually determined by the
central authorities (national Bank).
• የቅናሽ ዋጋው ብዙውን ጊዜ በማዕከሊዊ ባሇስሌጣናት
(ብሔራዊ ባንክ) ይወሰናሌ.

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 Return on Investment (ROI)
ወዯ ኢንቨስትመንት መመሇስ (ROI)
• Rate of return is the ratio of average annual
profits, to the capital invested. It is the measure of
profitability which relates income to investment.
• የመመሇሻ መጠን የአማካይ ዓመታዊ ትርፍ ጥምርታ
ነው፣ ​ከተፈሰሰው ካፒታሌ ጋር። ገቢን ከኢንቨስትመንት ጋር
የሚያገናኘው የትርፋማነት መሇኪያ ነው።
• The formula for computing the ROI is:
ROIን ሇማስሊት ቀመር፡-
ROI = Average annual net income X 100%
Total Investment
ROI = አማካይ ዓመታዊ የተጣራ ገቢ X 100% /ጠቅሊሊ ኢንቨስትመንት
• Decision criterion: the higher the ROI, the better the project is.
• የውሳኔ መስፈርት፡ ROI ከፍ ባሇ መጠን ፕሮጀክቱ የተሻሇ ይሆናሌ።
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Exercise
Income statement
Year 1st 2nd 3rd 4th
Earnings After Tax (EAT) 11.2 35.2 36.8 38.4
Cumulative EAT 11.2 46.4 83.2 121.6

Initial investment is 100 million

ROI = Average annual net income X 100%
Total Investment

Average yearly income = 121.6 million = 30.4 million/year.

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ROI = 30.4 million X 100% = 30.4 %
100 million
Therefore, the return on investment is 30.4 % per year.

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Advantage of ROI የ ROI ጥቅም
• it is very simple to calculate and use

ሇማስሊት እና ሇመጠቀም በጣም ቀሊሌ ነው

Disadvantages of ROI የ ROI ጉዳቶች

• It does not consider the time value of money,
• የገንዘብን የጊዜ ዋጋ ግምት ውስጥ አያስገባም,
• It uses the accounting profit as a measure of
return of the project,
• የፕሮጀክቱን መመሇሻ እንዯ የሂሳብ ትርፍ ይጠቀማሌ,

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 Exercise 2
• Project life = 6 years የፕሮጀክት ሕይወት = 6 ዓመታት
• Initial investment = 160 million የመጀመሪያ ኢንቨስትመንት = 160 ሚሉዮን
• Total net profit for six years = 240 million
• ሇስድስት ዓመታት ጠቅሊሊ የተጣራ ትርፍ = 240 ሚሉዮን
• Calculate the ROI? ROI ያሰለት?
• Which project is better as compared to the
previous exercise?
ከቀዳሚው የአካሌ ብቃት እንቅስቃሴ ጋር ሲነፃፀር የትኛው
ፕሮጀክት የተሻሇ ነው?

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 Payback Period
የመመሇሻ ጊዜ
The payback period is the length of time
required to recover the initial investment.
የመመሇሻ ጊዜው የመጀመሪያውን ኢንቨስትመንት
ሇማግኘት የሚያስፈሌገው የጊዜ ርዝመት ነው.
• According to the payback criterion, the shorter the payback period,
the more desirable the project is
በክፍያ መመሇሻ መስፈርት መሰረት, የመመሇሻ ጊዜው አጭር ከሆነ, ፕሮጀክቱ የበሇጠ ተፈሊጊ ነው

• If the net cash inflow is uniform each year, then,

Intial Investment
Payback Period 
AnnualUniformCashInflow

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 Exercise
• A project whose investment outlay is 100 million is
expected to have a uniform annual net cash inflow of 25
million for five years
• የኢንቨስትመንት ወጪው 100 ሚሉዮን የሚሆን ፕሮጀክት ሇአምስት ዓመታት አንድ ወጥ የሆነ
ዓመታዊ የተጣራ 25 ሚሉዮን ገቢ ይኖረዋሌ ተብል ይጠበቃሌ።

Intial Investment
Payback Period 
AnnualUniformCashInflow

100million
Payback Period   4Yrs .
25million

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• If the cash flows of a project are not uniform, the
payback period is calculated by accumulating a
series of cash flows until the amount reaches the
initial investment.
• Example,
Year 0 1 2 3 4 5
Cash flow -30000 5,000 12,000 12,000 6,000 8,000

The payback period = 3 years + 1000 * 12 = 3 yrs and 2 months

6000

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Advantages of payback period
• It is simple to apply
• It is helpful in weeding out risky projects.
• It helps to assess the firm’s ability to meet its
financial obligations
Disadvantages of payback period
• It ignores the time value of money.
• It overlooks cash flows beyond the payback period.
• It may divert attention from profitability

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 Exercise
Year Project I Project II
1 4,000 10,000
2 8,000 10,000
3 15,000 10,000
4 12,000 10,000
5 7,000 10,000
Initial investment 30,000 30,000

Which project can be selected based on

Payback period ?
በመመሇሻ ጊዜ ሊይ በመመስረት የትኛውን ፕሮጀክት መምረጥ
ይቻሊሌ?
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 Net Present Value (NPV)
የተጣራ የአሁን ዋጋ (NPV)
NPV is the difference between the present values of the yearly net
cash inflows and the initial investment outlay
NPV አሁን ባሇው የዓመታዊ የተጣራ የገንዘብ ፍሰት እና በመጀመሪያው የኢንቨስትመንት ወጪ መካከሌ ያሇው ሌዩነት ነው።
It is calculated using the following equation
• የሚከተሇውን ስላት በመጠቀም ይሰሊሌ
CF1 CF2 CFn
NPV    ...   I0
1 k (1  k ) 2
(1  k ) n

 n CFt 
  (1  k ) t
NPV   
  I0
 t 1 
• CFt = cash flow of the t th period, k is the discount rate, t is
the number of periods between 1 and n.
• CFt = የቲ ኛ ጊዜ የገንዘብ ፍሰት, k የቅናሽ መጠን ነው, t በ 1 እና n መካከሌ
ያለት የክፍሇ-ጊዜዎች ብዛት ነው.
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The formula shows that we follow three steps to find the NPV of the project:
• ቀመሩ የሚያሳየው የፕሮጀክቱን NPV ሇማግኘት ሶስት ዯረጃዎችን እንዯምንከተሌ ነው።
• We multiply the cash flow of each year by the discount factor of the same year
to convert to its present value የየዓመቱን የገንዘብ ፍሰት ወዯ አሁኑ ዋጋ ሇመቀየር በዚያው
ዓመት በቅናሽ ዋጋ እናባዛሇን።
• We add the products to get the total value of the project. የፕሮጀክቱን አጠቃሊይ
ዋጋ ሇማግኘት ምርቶቹን እንጨምራሇን.
• We subtract the initial investment made at year zero from the total
present value to get the NPV
•
NPV ሇማግኘት በዜሮ የተዯረገውን የመጀመሪያ ኢንቨስትመንት ከጠቅሊሊ የአሁኑ ዋጋ
እንቀንሳሇን።
Decision : accept or reject and Ranking
ውሳኔ: ተቀበሌ ወይም አሇመቀበሌ እና ዯረጃ መስጠት
If the NPV is positive, accept the project.
NPV አዎንታዊ ከሆነ ፕሮጀክቱን ይቀበለ።
If the NPV is negative, reject the project.
NPV አለታዊ ከሆነ ፕሮጀክቱን ውድቅ ያድርጉ።
If the NPV is zero, be indifferent NPV ዜሮ ከሆነ ግዴሇሽ ይሁኑ
The higher the NPV, the better the project is
የ NPV ከፍ ባሇ መጠን ፕሮጀክቱ የተሻሇ ይሆናሌ።
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Example:
The initial investment of the project is 60,000 Ethiopian Birr.
Find the NPV of the project if the discount rate is 10%.
የፕሮጀክቱ የመጀመሪያ ኢንቨስትመንት 60,000 የኢትዮጵያ ብር ነው። የቅናሽ ዋጋው
10% ከሆነ የፕሮጀክቱን NPV ያግኙ.
Year (t) Cash flow Discount factor Present Value
1
(in Birr) (1  k) t
(In Birr)

0 -60,000 1 -60,000
1 6,000 0.909 5454
2 20,000 0.826 16520
3 30,000 0.751 22530
4 40,000 0.683 27320
4,000 0.621 2484
Total NPV 14308

Decision: accept the project because the

result is positive
ውሳኔ፡ ፕሮጀክቱን ተቀበሌ ምክንያቱም ውጤቱ አወንታዊ ነው።
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• For uniform cash flows: ሇአንድ ወጥ የገንዘብ ፍሰት;
 1  (1  k )  n 
NPV CF   
  I0
 k 
• Where CF is the uniform cash flow starting from year one, k is cost of
capital (discount rate), n is the number of periods.
• CF ከመጀመሪያው አመት ጀምሮ ወጥ የሆነ የገንዘብ ፍሰት ሲሆን k የካፒታሌ ዋጋ (ቅናሽ
መጠን) ሲሆን n የክፍሇ-ጊዜዎች ብዛት ነው።
• Take our previous example of the 100million initial investment. Find
the NPV of the project if it has an annual uniform net cash inflow of
Birr 26million for five years and if the cost of capital is 10%.
የ100ሚሉዮን የመነሻ ኢንቨስትመንትን የቀዯመ ምሳላያችንን እንውሰድ። የፕሮጀክቱን NPV በዓመት
ዩኒፎርም የተጣራ ጥሬ ገንዘብ ሇአምስት ዓመታት ብር 26ሚሉየን ከሆነ እና የካፒታሌ ዋጋ 10%
ከሆነ ፈሌጉ።
 1  (1  0.1) 5 
NPV 26   100  1.44
 0.1 
Decision: reject the project
ውሳኔ፡ ፕሮጀክቱን ውድቅ አድርግ 19
• Advantages of NPV የ NPV ጥቅሞች
• The time value of money is taken into account
• የገንዘብ ጊዜ ዋጋ ግምት ውስጥ ይገባሌ
• The cash flows from the beginning to the end of the project are considered
ከፕሮጀክቱ መጀመሪያ አንስቶ እስከ መጨረሻው ድረስ ያሇው የገንዘብ ፍሰት ግምት ውስጥ ይገባሌ
• It focuses on the profitability of the project
በፕሮጀክቱ ትርፋማነት ሊይ ያተኩራሌ
• It is useful for the comparison of mutually exclusive projects
እርስ በርስ የሚዯጋገፉ ፕሮጀክቶችን ሇማነፃፀር ጠቃሚ ነው
• Since the NPV is expressed in Dollar or Birr, the managers can
understand it more easily than percentages.
NPV በዶሊር ወይም በብር ስሇሚገሇጽ አስተዳዳሪዎቹ ከመቶኛ ይሌቅ በቀሊለ ሉረደት
ይችሊለ።

• Disadvantages of NPV የ NPV ጉዳቶች

• The NPV method can be employed in selecting from mutually
exclusive projects only when the projects are of the same size.
የኤን.ቪ.ቪ ዘዴ እርስ በርስ የሚስማሙ ፕሮጀክቶችን ሇመምረጥ ጥቅም ሊይ ሉውሌ
የሚችሇው ፕሮጀክቶቹ ተመሳሳይ መጠን ሲኖራቸው ብቻ ነው.
• The NPV method assumes that funds are reinvested at the cost of
capital
የ NPV ዘዴ ገንዘቦች በካፒታሌ ወጪዎች እንዯገና መዋዕሇ ንዋያቸውን እንዯሚያፈሱ ያስባሌ
• The cost of capital is assumed to remain constant throughout the
life of the project.
•
የካፒታሌ ዋጋ በፕሮጀክቱ ህይወት ውስጥ ቋሚ ሆኖ እንዯሚቆይ ይታሰባሌ.

20
 Exercise
Year Project “A” Project “B”
1 40,000 25,000
2 30,000 25,000
3 25,000 25,000
4 20,000 25,000
5 10,000 25,000
Initial 80,000 80,000
investment
Discount rate 10% 10%
• Calculate the NPV and which project is preferable and
why?
NPV አስለ እና የትኛዉ ፕሮጀክት ፕሮጀክት እና ሇምን?
Calculate the payback period and make a decision? Is the
decision similar with NPV result?
የመመሇሻ ጊዜውን አስሊ እና ውሳኔ አድርግ? ውሳኔው ከ NPV ውጤት ጋር ተመሳሳይ ነው?
21
 Benefit Cost Ratio (BCR)
የጥቅማጥቅም ዋጋ ጥምርታ (BCR)
• Benefit – cost ratio is also referred to as profitability index. It is an extension of the NPV
approach to compare the profitability of investment alternatives before arriving at investment
decision.
ጥቅማ ጥቅሞች - የወጪ ጥምርታ እንዯ ትርፋማነት ኢንዴክስም ተጠቅሷሌ። ወዯ ኢንቨስትመንት ውሳኔ ከመድረሱ በፊት
የኢንቨስትመንት አማራጮችን ትርፋማነት ሇማነፃፀር የ NPV አቀራረብ ማራዘሚያ ነው.
• There are two ways of defining the benefit cost ratio:
• የጥቅም ዋጋ ጥምርታን ሇመወሰን ሁሇት መንገዶች አለ።

a) PV to initial investment PV ወዯ መጀመሪያ ኢንቨስትመንት

BCR = PV
I
Where PV is present value of benefits and I is initial investment.
PV የጥቅማ ጥቅሞች የሚገኝበት እና እኔ የመጀመሪያ ኢንቨስትመንት የሆንኩበት።
b) NPV to initial investment NPV ወዯ መጀመሪያ ኢንቨስትመንት
NPV
NBCR = BCR – 1 or I

22
 Decision rules:
• When BCR > 1 or NBCR > 0, accept the project
• When BCR < 1 or NBCR < 0, reject the project
• When BCR = 1 or NBCR = 0, be indifferent
• if we compare two or more projects, the
higher the BCR/NBCR, the better the project is
ሁሇት ወይም ከዚያ በሊይ ፕሮጀክቶችን ካነፃፅር፣
BCR/NBCR ከፍ ባሇ መጠን ፕሮጀክቱ የተሻሇ ይሆናሌ።

23
• Example: Consider a project with initial investment of Birr 50,000 and the following Cash
inflows. Discounting rate is 12%
ሇምሳላ፡- በብር 50,000 የመጀመሪያ ኢንቨስትመንት እና የሚከተሇውን የገንዘብ ፍሰት ያሇው ፕሮጀክት
እንመሌከት። የቅናሽ መጠን 12% ነው
Year 1 2 3 4
A) BCR Cash inflow 12500 10000 30000 25000
PV
BCR 
I
12500 10000 30000 25000
(  2
 3
 4
)  50000
(1.12) (1.12) (1.12) (1.12)

11160  8000  21428  15924

50000
56512
 1.13
50000
b) NBCR = 1.13 –1 = 0.13
Decision: ???
24
 Advantages of BCR
• BCR indicates a relative and not absolute measure of
profits i.e. the benefit per dollar (Birr) of investment.
BCR የሚያመሇክተው አንጻራዊ እንጂ ፍፁም ያሌሆነ የትርፍ መጠን
ማሇትም የአንድ ዶሊር (ብር) የኢንቨስትመንት ጥቅም ነው።
Disadvantages of BCR
• This method cannot be employed when a
package of smaller projects is to be considered
in relation to a large project.
ከትሌቅ ፕሮጀክት ጋር በተያያዘ የትንሽ ፕሮጀክቶች ፓኬጅ
በሚታሰብበት ጊዜ ይህ ዘዴ ሉሠራ አይችሌም

25
 Exercises
Year Project “A” Project “B”
1 30,000 25,000
2 40,000 40,000
3 45,000 40,000
4 50,000 50,000
Initial investment 110,000 100,000
Cost of capital 12% 12%

Find BCR and NBCR of the two projects ?

Decision ?

26
 Internal Rate of Return
የውስጥ ተመሊሽ መጠን
• IRR is the discount rate that makes the present value of
cash inflows equal to the present value of cash
outflows.
IRR አሁን ያሇውን የገንዘብ ፍሰት ዋጋ አሁን ካሇው የገንዘብ ፍሰት ዋጋ
ጋር እኩሌ የሚያዯርግ የቅናሽ መጠን ነው።
• Previously, we find the IRR of a project by trying
different discount rates until we discover the discount
rate that makes the NPV zero. However, today it is
easier to find IRR of a project using Excel Application.
• ከዚህ ቀዯም NPV ን ዜሮ የሚያዯርገውን የቅናሽ መጠን እስክናገኝ
ድረስ የተሇያዩ የቅናሽ ተመኖችን በመሞከር የፕሮጀክትን IRR
እናገኛሇን። ሆኖም፣ ዛሬ የኤክሴሌ መተግበሪያን በመጠቀም የፕሮጀክት
IRR ማግኘት ቀሊሌ ነው።

27
 It is the value of k in the following equation
 n CFt 
Investment    
 t 1 (1  k ) t

CFt = cash flow at the end of year
K = internal rate of return
T = life of the project

Decision Rule for IRR is

 Accept :if IRR is greater than the cost of capital ተቀበሌ፡ IRR ከካፒታሌ ወጪ
የሚበሌጥ ከሆነ
 Reject: if the IRR is less than the cost of capital
 indifferent: if the IRR is equal to the cost of capital ግዴሇሽ: IRR ከካፒታሌ ዋጋ
ጋር እኩሌ ከሆነ
 If we are comparing two or more projects, the higher the IRR, the better
the project is.
ሁሇት ወይም ከዚያ በሊይ ፕሮጀክቶችን እያወዳዯርን ከሆነ፣ IRR ከፍ ባሇ መጠን ፕሮጀክቱ የተሻሇ 28
ይሆናሌ።
 Example:
• Find the IRR of a project with 20 million initial
investments, the cost of capital of 12 % and
with the following table of cash flows.
• 20 ሚሉዮን የመጀመሪያ ኢንቨስትመንቶች ያሇው የፕሮጀክት IRR፣ የ12 %
ካፒታሌ ወጪ እና ከሚከተሇው የገንዘብ ፍሰት ሰንጠረዥ ጋር ያግኙ።
Year 1 2 3 4
Cash flow 6000 6000 8000 9000

29
Try to compute the NPV with 12% discount rate.

 6000 6000 8000 9000 

  2
 3
   20000  5357  4800  5714  5732  20000  1603
4 
 1.12 (1.12) (1.12) (1.12) 
Since the NPV is still positive, (1603), try again
with a higher discount rate: 15%
NPV አሁንም አዎንታዊ ስሇሆነ (1603) በከፍተኛ የቅናሽ ዋጋ እንዯገና ይሞክሩ፡ 15%

 6000 6000 8000 9000 

  2
 3
 4
  20000
 1.15 (1 .15) (1 .15) (1 .15) 

(5217 + 4545 + 5263 + 5142) –20000 = 167

30
Still the NPV is positive. Try again with a higher discount rate i.e. 16%.
አሁንም NPV አዎንታዊ ነው። በከፍተኛ የቅናሽ ዋጋ ማሇትም በ16 በመቶ እንዯገና ይሞክሩ።

 6000 6000 8000 9000 

  2
 3
 4
  20000
 1.16 (1 .16) (1 .16) (1 .16) 

(5172 + 4444 +5095 + 4945) = 19656

= 19656 – 20000 = -344
• Thus, it can be concluded that the IRR is between
15% and 16%
ስሇዚህ፣ IRR በ15% እና 16% መካከሌ ነው ብል መዯምዯም ያዙ

31
• However, the exact percentage can be computed using
interpolation techniques as:
• ሆኖም ትክክሇኛው መቶኛ የመሃሌ ቴክኒኮችን በመጠቀም ሉሰሊ
ይችሊሌ፡-
• Present value at 15% = 20167
• Present value at 16% = 19656
Difference = 511
The difference between the target present value 20000, and the
PV of 20167 (discounted at 15%) is 167.
(𝑁𝑃𝑉1​× 𝑅2​− 𝑅1​ )
𝐼𝑅𝑅 = 𝑅1​+
(𝑁𝑃𝑉1​− 𝑁𝑃𝑉2​)
=15%+(20167*(16-15))/20167-19656
=0.3268(0.33)
• Adding this number to 15%, we get the IRR
approximately 15.33%.
32
Advantages of IRR የ IRR ጥቅሞች
• It gives due consideration for the time value of money
• ሇገንዘብ ጊዜ ዋጋ ተገቢውን ግምት ይሰጣሌ
• It recognizes the total cash flows during the project life
• በፕሮጀክቱ ህይወት ውስጥ አጠቃሊይ የገንዘብ ፍሰትን ይገነዘባሌ
• It conveys the direct message about the yield on the project.
• በፕሮጀክቱ ሊይ ስሊሇው ምርት ቀጥተኛ መሌእክት ያስተሊሌፋሌ.
Disadvantages of IRR የ IRR ጉዳቶች
• It involves tedious work through trial and error and
interpolation
በሙከራ እና በስህተት እና በመሃሌ ሊይ አሰሌቺ ስራን ያካትታሌ
• The IRR does not reflect the scale, or dollar size
IRR ሌኬቱን ወይም የዶሊር መጠኑን አያንጸባርቅም።
• It assumes that all proceeds are reinvested at the particular
IRR, whereas the NPV approach assumes reinvestment at
the cost of capital.
ሁለም ገቢዎች በሌዩ IRR እንዯገና መዋዕሇ ንዋያቸውን እንዯተፈፀሙ ያስባሌ፣ የ NPV አካሄድ ግን
በካፒታሌ ወጪ እንዯገና መዋዕሇ ንዋይ ማፍሰስን ያስባሌ።

33
 Exercise
Year Cash flow

1 30,000

2 30,000

3 40,000

4 45,000

Initial investment 100,000

Discount rate 12%

Find IRR based on: በዚህ መሠረት IRR ያግኙ፦

1. trial and error method የሙከራ እና የስህተት ዘዴ
2. Interpolation method የኢንተርፖሌ ዘዴ

34
 Discounted Payback Period
የመመሇሻ ክፍያ ቅናሽ ጊዜ
To overcome the limitations of the payback period,
the discounted payback period method has been
suggested
የመመሇሻ ጊዜውን ውስንነት ሇማሸነፍ፣ የተቀነሰው የመመሇሻ ጊዜ
ዘዴ ቀርቧሌ
• The decision is similar with payback period.
The difference is multiplying each cash flow
by discount factor.
ውሳኔው ከመመሇሻ ጊዜ ጋር ተመሳሳይ ነው። ሌዩነቱ
እያንዳንደን የገንዘብ ፍሰት በቅናሽ ዋጋ ማባዛት ነው።
35
Exercise
Year Cash Flow
1 5000
2 6000
3 8000
4 7000
5 6000
Initial investment 10,000
Discount rate 10%
Calculate the payback period of the project ?
የፕሮጀክቱን የመመሇሻ ጊዜ ያሰለ?

36
 Exercise
Project Year Cash In flow PV of $1 at PV of cash Cumulative cash
10% inflow savings

0 -10000 1.000 -10000 -10000

1 5000 0.909 4545 -5455

2 6000 0.826 4956 -499

3 8000 0.751 6008 5509

4 7000 0.683 4781 10290
5 6000 0.621 3726 14016

 499 
Payback Pd = 2 Yrs +  
 6008 

= 2 Yrs + .083 Yr = 2.083 Yrs or 2 yrs and one month

37
End Of Chapter 6