1 Project A Project BYear PVIF at 8% Cash flow PV Cash Flow PV

0 1 -440 -440 -200 -2001 0.9259259259 241 223.1481 131 121.29632 0.8573388203 293 251.2003 172 147.4623

NPV $ 34.35 $ 68.76

IRR 13.46% 31.10%

MIRR 12.14% 25.20%

PI 1.08 1.34

2As the NPV of the project B is higher therefore it should be selected.

3 NPV at 13.46% Project BProject A Project B -200

-2.47 0 08 34.35 68.76 115.4592

13.46 0 49.07 133.611231.1 -85.7 0 49.0704

4Year Difference

0 -2401 1102 121

IRR -2.47% Crossover rate

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5

Year Cash Flow PVIF 10% PV0 -5 1 -51 30 0.909091 27.272732 -30 0.826446 -24.79339

NPV -2.520661

As the NPV is negative therefore the project should not be accepted.

The NPV profile with negative cash flow in last year can not be calculated.

Working Problem6

Year PVIF at 10 PV0 -30 1 -301 15 0.909091 13.636362 -25 0.826446 -20.661163 50 0.751315 37.56574

0.540947 NPVIRR 10.71%

AS the IRR is more than 10% therefore the project should be accepted

7NPV 0.541

As the NPV is positive therefore it should be accepted.

8PI 1.02

9MIRR 10.39%

10b. The projects’ cost of capital is less than 12%

11PVIF at 13% 7.024752

PV of 3 million 21.07425less Initial investment 20

NPV $ 1.07

12 2.2 Million 3.8 MillionPVIF at 13% 7.10155 6.216594 PVIF at 13% 7.10155

PV of 3 million 13.67651 PV of 3 million 23.62306less Initial investment 17.69912 less Initial investment 17.69912

NPV $ (4.02) NPV $ 5.92

It is better to wait for one year as if the tax is imposed the NPV will be negative.

MIRRYear FV pf A FV of B

at 8% at 8%1 260.28 141.482 293 172

Total FV 553.28 313.48

PVIF 553.28/440 313.48/2001.2575 1.5674

FVIF at 12.14% 1.2575FVIF at 25.2% 1.5675It can be done by trial and error or looking at the table for FVIF

NPV at 13.46% Project B NPV Project A at 31.1%-440

183.8291380625170.4756036611-85.6952582764

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Project A

6.2165943169