Project-A Project-B Project-C

Year Net cash flow Net cash flow Net cash flow
0 -150000 -150000 -200000
1 20000 -90000 -150000
2 30000 50000 90000
3 40000 60000 100000
4 40000 90000 110000
5 50000 90000 120000

Discount rate 5% 10% 15%

NPV of project-A 2896.41 -18605.60 -35894.77
NPV of project-B 6028.02 -28062.85 -54799.01
NPV of project-C 9679.68 -37209.95 -74076.16

IRR of Project-A 5.61%

IRR of Project-B 5.80%
IRR of Project-C 5.94%

We can calculate NPV by using the below formula IRR is the discount ra
Use the same formul
 When the discount rate > IRR rate, NPV <0 and the investment is not worth
Thus, when we choose a discount rate < IRR rate, NPV of project C is best

IRR of proeject C is best. Thus, we choose project C

RR is the discount rate r at which NPV = 0

Use the same formula and set NPV =0 to find the rate r
nd the investment is not worth making
rate, NPV of project C is best
 Project A Project B
Year Outflow Inflow Netflow Year
0 150,000 -150,000 0
1 20,000 20,000 1
2 30,000 30,000 2
3 40,000 40,000 3
4 40,000 40,000 4
5 50,000 50,000 5

Payback Period Payback Period

Year Cash Inflow Cumulative Cash Inflow Year
0 0
1 20,000 20000 1
2 30,000 50,000 2
3 40,000 90,000 3
4 40,000 130,000 4
5 50,000 180,000 5

Cash outflow 150,000 Cash outflow

Search for the year where the cummulative cash inflow > cash outflow. We can see that in all 3 pr
Pay back period = 4.4 Pay back period =

Project C has the least payback time. Thus

 Project C
Outflow Inflow Netflow Year Outflow
150,000 -150,000 0 200,000
130,000 40,000 -90,000 1 150,000
50,000 50,000 2
60,000 60,000 3
90,000 90,000 4
90,000 90,000 5

back Period Payback Period

Cash Inflow Cumulative Cash Inflow Year Cash Inflow
0
40,000 40,000 1
50,000 90,000 2 90,000
60,000 150,000 3 100,000
90,000 240,000 4 110,000
90,000 330,000 5 120,000

280,000 Cash outflow 350,000

We can see that in all 3 projects, cummulative cash inflow in year 5> cash outflow. Thus, somewhere between
back period = 4.44444444 Pay back period =

least payback time. Thus,we choose project C

 Project C
Inflow Netflow
-200,000
-150,000
90,000 90,000
100,000 100,000
110,000 110,000
112,000 112,000

back Period
Cumulative Cash Inflow

0
90,000
190,000
300,000
420,000

hus, somewhere between year 4 and year 5 we have enough money for payback
4.41666667