The Investment Detective CASE STUDY HBR

Project Free Cash Flows (in $ Thousands)

Project Number 1 2 3 4 5 6 7

Initial Investment ($2,000) ($2,000) ($2,000) ($2,000) ($2,000) ($2,000) ($2,000)

Year 1 $330 $1,666 $0 $160 280 $2,200 $1,200
2 330 334 0 200 280 900
3 330 165 0 350 280 300
4 330 0 395 280 90
5 330 0 432 280 70
6 330 0 440 280
7 330 0 442 280
8 1,000 0 444 280
9 0 446 280
10 0 448 280
11 0 450 280
12 0 451 280
13 0 451 280
14 0 452 280
15 10,000 -2,000 280

Sum of Cash Flow Bene $3,310 $2,165 $10,000 $3,561 $4,200 $2,200 $2,560
Excess of Cash Flow
Over Initial Investm $1,310 $165 $8,000 $1,561 $2,200 $200 $560
Total Life of Investment

Net present Value at:

10% ₹ 1,950.39 ₹ 440.00 ₹ 2,633.31 ₹ 2,291.04 ₹ 2,129.70 ₹ 0.00 ₹ 1,181.54
11% ₹ 1,877.74 ₹ 434.82 ₹ 2,319.95 ₹ 2,200.49 ₹ 2,013.44 ₹ 0.00 ₹ 1,166.22
12% ₹ 1,809.11 ₹ 429.75 ₹ 2,046.20 ₹ 2,114.06 ₹ 1,907.04 ₹ 0.00 ₹ 1,151.28
13% ₹ 1,744.25 ₹ 424.79 ₹ 1,806.77 ₹ 2,031.66 ₹ 1,809.47 ₹ 0.00 ₹ 1,136.71
14% ₹ 1,682.90 ₹ 419.94 ₹ 1,597.10 ₹ 1,953.17 ₹ 1,719.81 ₹ 0.00 ₹ 1,122.51
15% ₹ 1,624.82 ₹ 415.20 ₹ 1,413.29 ₹ 1,878.46 ₹ 1,637.26 ₹ 0.00 ₹ 1,108.65
16% ₹ 1,569.79 ₹ 410.55 ₹ 1,251.95 ₹ 1,807.39 ₹ 1,561.13 ₹ 0.00 ₹ 1,095.13

Internal Rate of Return

Profitability Index

Payback (Years)
Average ROI

Equivalent Annuity (Note 3)

Equiv. Annuity (to infinity)
 8

($2,000)
($350)
-60
60
350
700
1,200
2,250

$4,150

$2,150

₹ 2,751.28
₹ 2,626.76
₹ 2,509.08
₹ 2,397.81
₹ 2,292.54
₹ 2,192.90
₹ 2,098.53