GROUP

PRESENTATION
ON
INTERMEDIATE
FINANCE
Submitted by:
(i) Kazi Shakhara Alom Nira
(2056BBA04236)

(ii) Rubaba Karim

(2056BBA04244)

Submitted to:
Idris Ali
Assistant professor of
Manarat International University
Let assume that this project of ours is independent of any other
potential projects that may under take.

We will evaluate four alternative methods and see which one will be
accepted.

Payback period (PBP)

Internal Rate Of Return (IRR)

Net Present Value (NPV)

Profitability Index (PI)

 Pay Back Period (PBP):
PBP is the period of time required for the cumulative
expected cash flows from an investment project to
equal the initial cash outflow.

Year Cash Flows Cumulative

Inflows
0 -40k (b)
1 10k 10k
2 12k 22k
3 (a) 15k 37k
4 10k (d) 47k (c)
5 7k 54k
PBP =

= 3.3 years

We have set a maximum PBP of 3.5 years for this project.

Since, the PBP is 3.3 years so, YES we can accept this
project.
 Internal Rate of Return (IRR):
IRR is the discount rate that equates the present value
of the future net cash flows from an investment project with
the project’s initial cash outflow.

ICO= + +……………+

We have to find the internal rate (IRR) that causes the

discounted cash flows to equal $40,000.
With IRR 10% -
$40000 = + + + +

= 9090 + 9917 + 11270 + 6830 + 4347

= 41454 [Rate is too low!]

Now try with IRR 15% -

$4000 = + + + +
= 8696 + 9074 + 9863 + 5717 + 3480

= 36830 [Rate is too high!]

To approximate the actual rate, we interpolate between
10 and 15 percent as follows:

0.05 4624

Þ =

ÞX=

Þ X = 0.0157
IRR = 0.10 + 0.0157
= 0.1157 or 11.57%

We have determined that the hurdle rate is 13% for this project. Since the
IRR is 11.57% so we should not accept this project.
 Net Present Value (NPV):
NPV is the present value of an investment project’s net cash
flows minus the project’s initial cash flow.

NPV = + +……………+ - ICO

We have determined that the appropriate discount rate (K) will be

13% for this project.
NPV = + + + + - 40000

= 8850 + 9397 + 10396 + 6133 + 3800 – 40000

= 38576 – 40000

= - 1424

As we know, an investment project’s net present value is zero or more the

project is accepted. But the NPV of out project is negative. So we cannot
accept it.
 Profitability Index:
PI is the ratio of the present value of a project’s future net cash
flows to the project’s initial cash out flow.

PI =

= 0.9644

As long as the profitability index is 1.00 or greater, the investment proposal is

accepted. Our project PI is 0.9644 so it is not accepted.
 Evaluation Summary
Masic Beauty (Spread Happiness)
independent project
Method Project Comparison Decision
PBP 3.3 3.5 Accepted
IRR 11.57% 13% Rejected
NPV - 1424 0$ Rejected
PI 0.9644 1.00 Rejected

So, by doing all the analysis we defiantly going to use PBP method for our
upcoming project.