Basic VnetnodsS for Inyestyncnt Analysis 1) Eaphit velovestrrenk tale of vefura ERR) Method #) Annual tosr Method 3) Presents Worth method F) Inernal rate of return CAR) Method Sy Poy swe period metro tae mevnod Faken ler: Co. vequired Capital invest mend G > Annual in@me oO > orecokon \ Annial expenses - Maite range Depreci atten (0) ~ Je- to\ Lave, iy in| Po - Nel popit before inwo me, taxes Ph = G- (orm +0) Annual fale of rebar on required invest mort epre immme taxes(R)= Fe (poy) Cc RR > MAR , the invert ment of capita | in We — pwjet Is justified Ac Method fovHtern WC = Required investment @ = Annual income © = Gperarion ¥ fenwial expenses M = thaintenaneDepevotion C0) = Co-Cr)(Alf er 49) Minimum Bequired pre = Cj Exes of annugl mom over annuctl bx penis (Ee) = G@- (O+M4 DEC) =O or + value Ly prenthe invest ment of Capital in He, projed Wo juckRed . Prevent worth (PIO) Menod g (omy, CAF sits) [Go (or been e LG ~ COM], ( PFE wd, (IF, OF 2)| mel tom) | + nf PFE Lm) ~C- oR md je \s th “|p, 1s Aes 4-0 ye Daoutsements Revit, - SL = OCHA. A) + RCE, HT oymer) Ba COIR ify W2) Pee aT ea : Ra CFP, bY) ne) + Rat (F/M CFD 4 Rn = 0 Pot B, CRF i) Re CF, OY, 2) Py CREO pm) b Ra CRIP, OF, 4) a pea CPR, cern) RAC PIE Cyn) = © Foyowt geried — Method agate C- Ca _ Foyewt perisd in yeas = @ (ord 7)Example 1 © ir icestimakd = Uagt insulation of skam ips m a factory, will reduce He fuel vill @& much of 207. The Cost of the Insulation 1s P 4b, 000 instaled and We annual ct of taxes and insurome ic Sf of HE ynitial wh withod fhe insulated, ine annual fuel bill Ist 160,07 If de insulation is worthless offer & year we, and minia un pebyro of tay. te desed , WOAH be worthwhile — tp inwek mn Hee Insuladion 4 Som mud) savings = 9-20(10,59) = © B00 Annu@ (xy = Depeciotnon = go00 (A/F, Wb). Fh,ogo = 40,000 (0.1202) Tore ard inurane = — 0-06(9% ap» F 458d Tera Oy = 1S, S40 Annual savings 7 Pe, 60d konwol Popt = AS- Ct = Dugvd- 1, SAD Annual Port = f 20, 410 Annual Pf, Role of Rehuen = ¢ Wo) Ruqgured Aniwral Capita) 201 410 ( wor) 40,080 RE gatd > 12/ We insulaim Shuid be intalled-Example 2 @® A Yheoler in \ivilo is wAsidering Ye inskallation of an air-conditioning, System whidn 1s believed will Increase oHendonce by on avevage of 100 persone a doy: Me anerOge charge per penon is Fe-oo and WE tugler © Wo operation for 00 aye coon year he syn wowd WSb Fue, 000 instollled , Ond His estimated Yet fre overagg = maintenance cect woulk be f 12,000 yor year: Gaicd on ane performance of similar sysdes , We dolly operarion uxt Md ve Fro ond ste estima life iS lo yeart- Toves B Insuvource wold ve 95). of We fmt cach or oepeci oho? , oye — Sal ianey con be INNA) — Gt las). compounded artally Vf We healer xs nu making gq profi F SJ. onits jnvect wont, WORD yen teummmend —yhat he Iretalladio of the Sysha”, Sol'n Aadihonal annual weome = loo (20) (few) = F 299,000 Annual Erperses Pom Depreciation = 00,00 CATE, a)-,10) : 40 = 420,000 ( 0-054) ee = f 72,000 Operation > (v0) (200) = f 12,00 Mainien ance = Tones 2 Insuonce = 0-045 (yooee) = T 41000 Tora ost =P 9t 1190 Annvol Pupil = Annual Invome ~ Annual Experts = 266. 550 ~ yao =F 148,310 Annyot POF Rok of reharn Goo) Initial or the Reqyind Capital Invest Meat Ves 1D (100) tomo : ‘ , u = oy pf the ait-tondiition Mg Cygie — shew! Ra. aO/. > tion aExample 3 @) An cxishng mading in 0 forty hos an omnual maintenance oct of € 40,009. new and more offen madnine will Nqguire an Toresdment of FA 096 ond 1¢ egimakd tp have a salvage vawe oF f%,000 oF tre ond of & years y's annual eygentes for muinienance and upkeep, etc total ¥22,000- It the = wrnpory exper TD eom aj. on ik Investment, voill it ve worthwhile Yo yurehoe dhe new Machine using the = a>) present worth mettod be) fole-of - reburn Method soln: POM Peseta mathing = 74.006 (P/A 2), %) = ¥40,000 ( 4-476) = Figg, tO Pawo radnive = Pape + fanyoo ( PAA, 1aJ,,¢) - $20,000 (P/F, #/.,9) = Fa0,000 + 22000 ( 4-4¥F6) - 90/000 ( 0-4024) > P 183, 190 Preo madrite 2 Pexising, Madi re Role of - Return Method Annual cost of evicting — Machine F 4os000 Annual cot of Mew Mhautaiwe- depectation = (@0,c00 ~ 20,0m0)(A/r 12/8) (Goa )(0: 08%) = Ta, 860 Kenrwad — tauntenans ore = far, 020 Jen) wor = F 26,490 Annual Saxing © Papo nrAnny ong = 119,120 1420, wn 2 18% (90) ole of rehw cam = WG 7 Q veavite to puro he nad Yeah,Example 4 ® A grea capiniized for Fsr000 \wesked in depeciaule owete wil earn a unifore , annua) income of Fia.tga 10 10 Yeats. the ust fer operation and mainoan.e tpl @ 71000 oO year, and faves and insurance will ust 4% of He fect ons ah Year. If the wmpony enpectsik capital 4 gard I2Y- vefore mnuome taxes as tre \avestment worthuohile 7 Sola: a1) Rate- of. Rehr — Method - Anwal Mmuwme = f 14,949 Annual (cts : Depreriokion = Sd (M/F, 12h, yp) 2 or) 00H (O-nWHIL) = F2,849 Operation & mynienane wxt =f9100 ~ fores Insurance = 0.04( 50,000) = 7 #10 roa poral ont = PP, 844 Annual Profit = 19.949 - 13,249 = FL,000 6,000 -of-ReMrn = —— ale -of $P) 000 = IRS b> Annual- Cos% — Melhod Annual Mme = Annual tots : pri pi depuration + 0,000( A/F, by, 9) fase Operation + Maintenance (xt = P4100 Jaxer 4 Insurane + 0.04( 50/000) > Far 6d Mins Required profit = 01a 0, 60) = ovo ‘talanual tas Need) Annual Inwine - fobs annual tz = 6 Aine fneeh tmenk ie Unmet lsh TheAnnual Inwome - tobal annual ty > 6 ‘We Imes ment 1c Voort hwhile ppm P — Jay94a (PAA jay: 10) vorenue, > 19, ¢49 (662) = P12, 1d Pens = 0000 « [14.00 + 0-04 s0,c00)| [ P/A 12/ »l = somo + [ N,000][e-aco2] = FIR, Prevenve = Pose, Yurfne the investment 16 worth while - ® IRR Melnod Ne poaibve casn finns oth He end of ear of He 10 yeaue = 14,849 ~ 9,000 - 0-04 [S009 » f 6344 ams, Fie + BFA PA, I2T WL For (= 10d. 500 + & eG Gyo") ~ 0 7 Pru mvestment jg worthuobe