Question

3(a)-3(c) based on the following table. 3(a) What is NPV for project A? Discount rate 11% YearProject A Project B 1000 500 500 500 500 500 200 350 360 200 200 200 -800 420 420 420 420 420 300 300 300 450 260 260 4 6 10

Answer 1

	Answer = 3(A)
	CALCULATION OF THE NET PRESENT VALUE OF THE PROJECT A
	Years	Cash Flows	PVF of $ 1 @ 11%	Present Value
	0	-$1,000	1.00000	-$1,000.00
	1	$500	0.90090	$450.45
	2	$500	0.81162	$405.81
	3	$500	0.73119	$365.60
	4	$500	0.65873	$329.37
	5	$500	0.59345	$296.73
	6	$200	0.53464	$106.93
	7	$350	0.48166	$168.58
	8	$360	0.43393	$156.21
	9	$200	0.39092	$78.18
	10	$200	0.35218	$70.44
	11	$200	0.31728	$63.46
	Total	$3,010		$1,492
	CALCULATION OF THE NET PRESENT VALUE OF THE PROJECT B
	Years	Cash Flows	PVF of $ 1 @ 11%	Present Value
	0	-$800	1.00000	-$800.00
	1	$420	0.90090	$378.38
	2	$420	0.81162	$340.88
	3	$420	0.73119	$307.10
	4	$420	0.65873	$276.67
	5	$420	0.59345	$249.25
	6	$300	0.53464	$160.39
	7	$300	0.48166	$144.50
	8	$300	0.43393	$130.18
	9	$450	0.39092	$175.92
	10	$260	0.35218	$91.57
	11	$260	0.31728	$82.49
	Total	$3,170		$1,537
	Answer = 7)
	IRR : IRR Means with a particular Percentage rate , At that point the present value become the zero
	First we calculate randomly present value with @ 50% discounting rate
	Years	Cash Flows	PVF of $ 1 @ 50%	Present Value
	0	-$800	1.00000	-$800.00
	1	$420	0.66667	$280.00
	2	$420	0.44444	$186.67
	3	$420	0.29630	$124.44
	4	$420	0.19753	$82.96
	5	$420	0.13169	$55.31
	6	$300	0.08779	$26.34
	7	$300	0.05853	$17.56
	8	$300	0.03902	$11.71
	9	$450	0.02601	$11.71
	10	$260	0.01734	$4.51
	11	$260	0.01156	$3.01
	Total	$3,170		$4.20
	With PVF of 50% we are getting positive =			$4.20
	Secondly we calculate randomly present value @ 51 % discounting rate
	Years	Cash Flows	PVF of $ 1 @ 51%	Present Value
	0	-$800	1.00000	-$800.00
	1	$420	0.66225	$278.15
	2	$420	0.43858	$184.20
	3	$420	0.29045	$121.99
	4	$420	0.19235	$80.79
	5	$420	0.12738	$53.50
	6	$300	0.08436	$25.31
	7	$300	0.05587	$16.76
	8	$300	0.03700	$11.10
	9	$450	0.02450	$11.03
	10	$260	0.01623	$4.22
	11	$260	0.01075	$2.79
	Total	$3,170		-$10
		Net Present Value =		-$20.34
	With PVF of 51 % we are getting negative =			-20.34
	So the differecne in both % net present value is =			$4.20	"-"	-$20.34
	Total is become =			$24.54
	So , the difference % =			$4.20	"/"By	$24.54
	So , the difference % =			0.17
	So, the IRR =			50.17%
	Question 8)
	Net present value of the Project B is more than Project A so we can choose the project B
	Answer = Project B