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Pay back for propo sal A Year 0 1 2 3 4 5 Cash Inflow 100,000 0 0 73,000 73,000 73,000 Cummulative cash flow
Year 0
1 2 3 4 5 Pay back for propo sal C year Cash Inflow 200,00 0 145,00 0 145,00 0 0 0 0
Year 0 1 2 3 4 5
Pay back for propo sal E Year Cash Inflow Cummulative cash flow
0 -70,000 1 2 3 4 5 70,000 70,000 70,000 70,000 70,000 70,000 140,000 210,000 280,000 350,000
NPV FOR A Year 1 2 3 4 5 Cash flow 0 0 73,000 73,000 73,000 Discount factor 0.909 0.826 0.751 0.683 0.621 PV 0 0 54823
NPV FOR B Year 1 Cash flow 66,00 0 Discount factor 0.909 PV 59994
2 3 4 5
NPV FOR C Year 1 2 3 4 5 Cash flow 145,0 00 145,0 00 0 0 0 Discount factor 0.909 0.826 0.751 0.683 0.621 PV 1318 05 1197 70 0 0 0
NPV FOR D Year 1 2 3 4 5 Cash flow 16,00 0 16,00 0 16,00 0 16,00 0 16,00 0 Discount Factor 0.909 0.826 0.751 0.682 0.621 PV 14544 13216 12016 10912 9936 60624
NPV=PV-Initial Investment=60,624-40,000=20624 NPV FOR E Yea Cash Discount r flow factor PV 1 2 3 4 5 70,00 0 70,00 0 70,00 0 70,00 0 70,00 0 0.909 0.826 0.751 0.682 0.621 6363 0 5782 0 5257 0 4774 0
4) When comparing two projects , you take into consideration the amount invested and the duration of the investment period. The internal rate of return on an investment or project is the "annualized effective compounded return rate" or discount rate that makes the (NPV) of all cash flows (both positive and negative) from a particular investment equal to zero. The higher a projects internal rate of return, the more advantageous it is to carry out the project.For managers the IRR will be a better option since it takes into consideration every thing being equal and clearly demonstrates which of the two is an available option.The IRR is also very simple for ordinary readers to have an idea on what an investment is going to give you in terms of percentage though at times it may not give you the complete picture as it does not provide the absolute amount of profit and loss. That not with standing, it is how ever an easy reference for managers to make decisions. It will be more advantageous for firms and companies to undertake all projects or investments available with IRRs that exceed the cost of capital.The internal rate of return on an investment or project is the "annualized effective compounded return rate" or discount rate that makes the net present value (NPV) of all cash flows (both positive and negative) from a particular investment equal to zero. Because the IRR is a rate quantity, it indicates the efficiency, quality, or profit of an investment. This is in great contrast with the net present value, which instead indicates the value or magnitude of an investment. . .
As for the superiority of NPV,Eddie Mclaney and Peter Astrill in their book Accounting An Introduction that NPV is considered the most logical approach to making business decisions about investments in productive assets. The same logic makes NPV equally valid as the best approach to take when trying to place a value on any economic asset that seems capable of yielding financial benefits. This would include a share in a limited company and a loan. In fact, when we talk
of economic value, we mean a value that has been derived by adding together the discounted value of all future cash flow from the asset concerned (Eddie and Peter)p547.NPV is also of advantage because by discounting the various cash flows associated with each project according to when each one is expected to arise, NPV takes account of the time value of money. Also NPV includes all of the relevant cash flow irrespective of when they are expected to occur it treats them differently according to their date of occurrence(p546
REFERENCES >Eddie Mc laney and Peter Astrill. Accounting An Introduction,5th ed, library of congress. England 1990 Danzil Watson and Anthony Head.Corporate Finance, Principles and Practice,5th ed library of congress