Scribd
Upload
13 views3 pages

Day1 GroupWork

Uploaded by

swati.up1905
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
13 views3 pages

Day1 GroupWork

Uploaded by

swati.up1905
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
You are on page 1/ 3

Q.

1 Project X Project Y
Year CF Cumulative CF Cumulative
0 -100 -100 -80 -80
1 60 -40 40 -40
2 50 10 50 10
3 40 50 0 10
4 30 80 0 10

Payback Period 1.8 1 year 292 days 1.8 1 year 292 days

Discount Rate 10%

NPV 46.41 -2.31

Q. 2 As per NPV, Co. should invest in Projects A, C, F Value Added = £237M

Projects Investment NPV IRR (%) Profitability Index


A -100 140 15 1.4
C -50 65 43 1.3
F -40 32 50 0.8
E -150 30 10 0.2
B -20 20 15 1
G -20 18 30 0.9
D -50 -10 5 -0.2

As per IRR, Co. should invest in Projects F, C, G Value Added = £115M

Projects Investment NPV IRR (%)


F -40 32 50
C -50 65 43
G -20 18 30
A -100 140 15
B -20 20 15
E -150 30 10
D -50 -10 5

To reconcile the differences between IRR and NPV Project Selection choices, it is
ideal to use the Profitability Index which measures the Value Added per unit of
investment. We will select the projects with the highest PI under the same budgetary
constraints.
As per PI, Co. should invest in Projects A, C, B, G Value Added = £243M
Projects Investment NPV IRR (%) Profitability Index
A -100 140 15 1.4
C -50 65 43 1.3
B -20 20 15 1
G -20 18 30 0.9
F -40 32 50 0.8
E -150 30 10 0.2
D -50 -10 5 -0.2
Payback Period suggests selection of both projects

However, unhelpful if opportunity cost of capital is specified at 10%


because Project X has a positive NPV while Project Y has a negative NPV

Despite the better ranking of Project F, Projects B and G add the highest value
as denoted by NPV to the company
Validated by the Profitability Index as the ones with the highest ranking as per
PI add the highest value

You might also like