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20106A1030-Payal Pol-FM Case Study

The document compares 4 projects (A, B, C, D) on their accounting rate of return, NPV at 10% and 35% discount rates, and IRR. It finds that Project D has the highest IRR at 42%, NPV is positive at both discount rates, and payback period is 1 year. Project B and C also have positive NPV at a 10% discount rate and IRRs of 32% and 34% respectively. Project A has no positive cash flows or returns.

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Siddhesh Mahadik
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75 views7 pages

20106A1030-Payal Pol-FM Case Study

The document compares 4 projects (A, B, C, D) on their accounting rate of return, NPV at 10% and 35% discount rates, and IRR. It finds that Project D has the highest IRR at 42%, NPV is positive at both discount rates, and payback period is 1 year. Project B and C also have positive NPV at a 10% discount rate and IRRs of 32% and 34% respectively. Project A has no positive cash flows or returns.

Uploaded by

Siddhesh Mahadik
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as XLSX, PDF, TXT or read online on Scribd
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Tax 40%

Project A 10000

Year EBDT Depreciation EBT Tax EAT

1 10000 10000 0 0 0
0

Project B 10000
Year EBDT Depreciation EBT Tax EAT
1 9167 5000 4167 1667 2500
2 9167 5000 4167 1667 2500
5000

Project C 10000
Year EBDT Depreciation EBT Tax EAT
1 4445 3333 1112 445 667
2 6111 3333 2778 1111 1667
3 14445 3333 11112 4445 6667
9001

Project D 10000
Year EBDT Depreciation EBT Tax EAT
1 14445 3333 11112 4445 6667
2 4445 3333 1112 445 667
3 2778 3333 -555 -555
6779

Accounting return on investment = Average annual after tax profit/ (Required investmen

Project A
0

Project B
50

Project C
60
Project D
45.19

Calculating NPV & Internal Rate of Return

Project A 10%
Year Net cash Discounting PV Discounting PV
inflow factor @ 10 % factor @ 35 %
0 -10000
1 10000 0.9091 9091 0.7407 7407.4
0%

Project B

Net cash Discounting Discounting


Year PV PV
inflow factor @ 10 % factor @ 35 %

0 -10000
1 7500 0.9091 6818 0.7407 5555.6
2 7500 0.8264 6198 0.5487 4115.2
32% 13017 9670.8

Project C
Net cash Discounting Discounting
Year PV PV
inflow factor @ 10 % factor @ 35 %
0 -10000
1 4000 0.9091 3636 0.7407 2963
2 5000 0.8264 4132 0.5487 2743
3 10000 0.7513 7513 0.4064 4064
34% 15282 9771

Project D
Net cash Discounting Discounting
Year PV PV
inflow factor @ 10 % factor @ 35 %
0 -10000
1 10000 0.9091 9091 0.7407 7407
2 4000 0.8264 3306 0.5487 2195
3 2778 0.7513 2087 0.4064 1129
42% 14484 10731

Net Present Value


10% 35%
Project A 9091 10000 -909 7407.4 -2593

Project B 13017 10000 3017 9670.8 -329.2

Project C 15282 10000 5282 9771 -229

Project D 14484 10000 4484 10731 731

IRR

LROI HROI NPV @10% NPV @35%


Project A 0.1 0.35 -909 -2593
IRR 0%

LROI HROI NPV @10% NPV @35%


Project B 0.1 0.35 3017 -329.2
IRR 32%

LROI HROI NPV @10% NPV @35%


Project C 0.1 0.35 5282 -229
IRR 34%

LROI HROI NPV @10% NPV @35%


Project D 0.1 0.35 4484 731
IRR 42%
Calculating payback period(year)

Cash inflow Payback period 1

10000
10000

Cash inflow
7500 Payback period 1.33
7500
15000

Cash inflow
4000 Payback period 2.5
5000
10000
19001

Cash inflow
10000 Payback period 1
4000
2778
16779

t/ (Required investment)/2
Payback Accounting
Parameters Rate of NPV@10% IRR
Period
Return
Project A 1 year 0% -909 0%
Project B 1.33 year 50% 3017 32%
Project C 2.5 year 60% 5282 34%
Project D 1 year 45.19% 4484 42%
Introductory expense
Sales 60% 1 year 200000
Expenses 23.50% N 5
Tax 40%
Net working 27%

Year 0 1 2 3 4 5
Sales 10000000 13000000 13000000 8667000 4333000
Cost of sales 6000000 7800000 7800000 5200200 2599800
expenses 2350000 3055000 3055000 2036745 1018255
depreciation 100000 100000 100000 100000 100000
intro. Expenses 200000
PBT 1350000 2045000 2045000 1330055 614945
Tax 540000 818000 818000 532022 245978
Net income 810000 1227000 1227000 798033 368967
Operating cash flow 910000 1327000 1327000 898033 468967
Working capital2700000 3510000 3510000 2340090 1169910 0
Recovered -2700000 -810000 0 1169910 1170180 1169910
Equipment -500000
Total cash flow-3200000 100000 1327000 2496910 2068213 1638877
Net Present Value

Cost -3200000
Cash flow
Year
1 100000
2 1327000
3 2496910
4 2068213
5 1638877
Total Cash flow 7631000
Discounting rate 20%
NPV 905862.19
IRR 30%

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