Question

You are a project manager with Striker Projects Pvt. Ltd. As the project manager, you need to evaluate two projects “Salient” and “Stylish”, and make a recommendation to management for the selection of a suitable project. Both the projects “Salient” and “Stylish” entail an initial investment of ₹5,00,000. Projected cash inflows for the Project “Salient” are ₹1,50,000 in year 1; ₹1,60,000 in year 2; ₹1,70,000 in year 3, and ₹1,65,000 in year 4. Projected cash inflows for the Project “Stylish” are ₹1,40,000 in year 1; ₹1,40,000 in year 2; ₹1,40,000 in year 3, ₹1,25,000 in year 4; and ₹1,22,000 in year 5. The required rate of return is 10%. The present value of ₹1 at 10% is ₹0.909 for year 1, ₹0.826 for year 2, ₹0.751 for year 3, ₹0.683 for year 4, and ₹0.621 for year 5. Calculate Net Present Value (NPV), Internal Rate of Return (IRR) and Profitability Index (PI) for both the projects “Salient” and “Stylish”. Compare and contrast NPV, IRR and PI values of projects “Salient” and “Stylish”, and recommend a suitable project for investment to the management. Require Answer in 1000 Words

Answer 1

Con = New Microsoft Office Excel Worksheet (2) - Microsoft Excel Review View Percentage Dr EF AutoSum" A Wrap Text Merge & Center - - 3 Insert Delete Format E $ % , - H D 0.00 Conditional Format Formatting as Table Styles Cell Styles 2 Clear Home Insert Page Layout Formulas Data Cut Calibri - 11 - A A La Copy Format Painter BI U A E Clipboard Font L576 fac EIRR(J569:J573) F 5.71 0.659571 9.65 2.738944 Sort & Filter Editing Find & Select Alignment Number Cells M N O P Q R S T U V W 7.66 560 565 569 571 Project Salient Year cash flow present vepresent value of cash flow = cash flow*present value factor -500000 1 - 500000 1 150000 0.909 136350 160000 0.826 132160 170000 0.751 127670 165000 0.683 112695 Net present value = sum of present v 8875 PL=1+(NPV 1+(8875/500000) 1.018 IRR =Using IRR(1569:J573) 10.81% 573 576 577 578 579 ► Sheet3 Sheet1 Sheet2 Sheet4 Select destination and press ENTER or choose Paste Project Stylish Year cash flow Sheets Sheet6 Sheet7 present va present value of cash flow = cash flow*present value factor Sheets 90 100% - 0 10:00 AM J e to 3/20/2020

Con = New Microsoft Office Excel Worksheet (2) - Microsoft Excel Insert Page Layout Formulas Data Review View Home Cut x A Percentage AutoSum Eg Copy Format Painter Calibri B I - 11 - A -> A Dr EE Wrap Text Merge & Center - Paste U - E E E ... $ - % , Number Insert Delete Format Conditional Format Formatting as Table Styles Cell Styles 2 Clear Clear Sort & Find & Filter Select Editing Alignment Cells Clipboard L588 Font fc =IRR(J580:1585) M N O P Q R S T U V W 570 571 572 I J K 150000 0.909 160000 0.826 170000 0.751 4 165000 0.683 Net present value = sum of present v PL=1+(NPV 1+(8875/500000) IRR EUsing IRR(J569:573) L 136350 132160 127670 112695 8875 1.018 10.81% 574 576 577 578 580 584 585 Project Stylish Year cash flow present va present value of cash flow = cash flow*present value factor 0 -500000 1 - 500000 140000 0.909 127260 140000 0.826 115640 140000 0.751 93875 125000 0.683 75762 122000 0.621 75762 Net present value = sum of present v -11701 PI =1+(NPV 1+(-11701/500000) 0.976598 IRR =Using IRR(J580:1585) 10.74%! Project Salient Project St Accept or reject NPV 8875 -11701 Accept pro As per decision criteria of NPV a higher value NPV project is preferred so project sailent would be selected PI 1.018 0.976598 Accept pro As per decision criteria of Pl a project with a more than Pl is preferred so project sailent would be selected IRR 10.81% 10.74% As per IRR criteria even both the project can be selected as IRR of both the project is more than the required rate of return o 586 587 589 590 591 592 .ipment MACRS rate 593 594 ► Ready Sheet3 Sheet1 Sheet2 Sheet4 From the analysis of the above results it is recommended that NPV and Pl techniques prefer the slection of Project Sailent but according to IRR both project would Sheets Sheet6 Sheet7 Sheets 3D 100% 10:00 AM 3/20/2020

Project Salient
Year	cash flow	present value factor at 10%	present value of cash flow = cash flow*present value factor
0	-500000	1	-500000
1	150000	0.909	136350
2	160000	0.826	132160
3	170000	0.751	127670
4	165000	0.683	112695
Net present value = sum of present value of cash flow			8875
PI =1+(NPV/Initial investment)	1+(8875/500000)		1.018
IRR =Using IRR function in MS excel	IRR(J569:J573)		10.81%
Project Stylish
Year	cash flow	present value factor at 10%	present value of cash flow = cash flow*present value factor
0	-500000	1	-500000
1	140000	0.909	127260
2	140000	0.826	115640
3	140000	0.751	93875
4	125000	0.683	75762
5	122000	0.621	75762
Net present value = sum of present value of cash flow			-11701
PI =1+(NPV/Initial investment)	1+(-11701/500000)		0.976598
IRR =Using IRR function in MS excel	IRR(J580:J585)		10.74%
	Project Salient	Project Stylish	Accept or reject
NPV	8875	-11701	Accept project Sailent	As per decision criteria of NPV a higher value NPV project is preferred so project sailent would be selected
PI	1.018	0.976598	Accept project Sailent	As per decision criteria of PI a project with a more than PI is preferred so project sailent would be selected
IRR	10.81%	10.74%	As per IRR criteria even both the project can be selected as IRR of both the project is more than the required rate of return of 10% but as manager has to select one project so project sailent with more IRR would be preferred.
From the analysis of the above results it is recommended that NPV and PI techniques prefer the slection of Project Sailent but according to IRR both project would be selected, but as it is mutually exclusive projects so Project sailent would be selected as it results in more IRR than the project stylish