Years Cashflows Accumulated cashflows Residual

1 10,000 10,000 90,000

2 40,000 50,000 50,000
3 40,000 90,000 10,000
4 40,000 130,000
5 10,000 140,000

Initial investment (100,000)

3 Years (10,000/40,000) 3.3 years

Conclusion:
The cut off point is 3 years and payback period is 3.3 years therefore the investment is not acceptable.
 Years Cashflows Discount Factor @ 7% Present value Accumulated cashflows Residual
1 10,000 0.935 9,346 9,346 90,654
2 40,000 0.873 34,938 44,283 55,717
3 40,000 0.816 32,652 76,935 23,065
4 40,000 0.763 30,516 107,451
5 10,000 0.713 7,130 114,581

Initial investment (100,000)

3 Years (23,065/30,516) 3.8 years

Conclusion:
The cut off point is 3 years and payback period is 3.8 years therefore the investment is not acceptable.
 Years Cashflows Discount Factor @ 7% Present value Discount Factor @ 3% Present value
1 10,000 0.935 9,346 0.870 8,696
2 40,000 0.873 34,938 0.756 30,246
3 40,000 0.816 32,652 0.658 26,301
4 40,000 0.763 30,516 0.572 22,870
5 10,000 0.713 7,130 0.497 4,972
114,581 93,084
Initial investment (100,000) (100,000)
Net present value 14,581 (6,916)
Intrapolation IRR 2.25%

Conclusion:
The required rate of return is 7% and the IRR of the project is 2.25% which is lower than required rate of return therefore the
rate of return therefore the project is acceptable.
 Year 0 1 2 3 4 5
Initial investment (100,000)
Cashflows 10,000 40,000 40,000 40,000 10,000
Discount factor @ 5% 1 0.952 0.907 0.864 0.823 0.784
Present value (100,000) 9,524 36,281 34,554 32,908 7,835

Net present value 21,102

Conclusion:
The NPV is positive therefore the project is acceptable.
Present value of cashflows 121,102
Initial investment 100,000
Profitability index = Present value cashflows / Initial investment 1.21

Conclusion:
The profitability index is above 1 therefore the project is acceptable.