Example comparing two projects using Payback method

Project A Project B

Investment 700,000 400,000

Annual Savings 225,000 110,000

Payback period 3.11111111111 3.636364

Rate of return 32% 28%

Project A: Accept. Less than 5 yrs and exceeds 15% desired rate

Project B: Accept. Less than 5 yrs and exceeds 15% desired rate
 Example comparing two projects using NPV

Project A Year0 Year1 Year2 Year3 Year4 Year5 Total

Required 15%
Outflows -700,000 -700,000
Inflows 225,000 225,000 225,000 225,000 225,000 1,125,000
Net inflows 225,000 225,000 225,000 225,000 225,000 425,000

Project B Year0 Year1 Year2 Year3 Year4 Year5 Total

Required 15%
Outflows -400,000 -400,000
Inflows 110,000 110,000 110,000 110,000 110,000 550,000
Net inflows 110,000 110,000 110,000 110,000 110,000 150,000

Accept Project A: NPV is positive

Reject Project B: NPV is negative
 54,235

Project A 54,235

Project A -31,263