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Discounted & Undiscounted Cash Flows

This document summarizes the key financial metrics of three projects: Project X, Project Y, and an additional project. For Project X and Project Y: Project X has a higher NPV, IRR, and PI than Project Y. However, both projects have a positive NPV and IRR greater than the cost of capital, so both could be selected if independent. If mutually exclusive, Project X should be selected based on its superior financial metrics. For the additional project: The project has a NPV of ₹7,486.68, IRR of 16%, payback period of 4.34 years, and PI of 1.14. All metrics indicate the project should be accepted as the

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179 views5 pages

Discounted & Undiscounted Cash Flows

This document summarizes the key financial metrics of three projects: Project X, Project Y, and an additional project. For Project X and Project Y: Project X has a higher NPV, IRR, and PI than Project Y. However, both projects have a positive NPV and IRR greater than the cost of capital, so both could be selected if independent. If mutually exclusive, Project X should be selected based on its superior financial metrics. For the additional project: The project has a NPV of ₹7,486.68, IRR of 16%, payback period of 4.34 years, and PI of 1.14. All metrics indicate the project should be accepted as the

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Year Project X Project Y Project X (cummulative) Project Y

0 -10000 -10000
1 6500 3500 6500
2 3000 3500 9500
3 3000 3500 12500
4 1000 3500 13500
1.a) PBP 2.1666666667 2.8571428571
NPV ₹ 966.01 ₹ 630.72
IRR 18% 15%
MIRR 15% 14%
PI 1.10 1.06
b) Since both the projects are independent, both can be selected. NPV is positive, IRR is greater than cost ca

c) If these two projects are mutually exclusive, project X can be acepted beccause NPV,IRR and PI value of pr

d) NPV (5%) ₹ 2,325.78 ₹ 2,410.83


When r=5%, there is a conflict between IRR and NPV.

When the conflict arises between IRR and NPV in selecting the project which is mutually exclusive, NPV criteri
NPV is directly linked to wealth maximisation objective.

2 YEAR CF DISCOUNTED CF CUMULATIVE DCF


0 -52125
1 12000 10714.29 10714.29
2 12000 9566.33 20280.61
3 12000 8541.36 28821.98
4 12000 7626.22 36448.19
5 12000 6809.12 43257.31
6 12000 6079.57 49336.89
7 12000 5428.19 54765.08
8 12000 4846.60 59611.68

NPV ₹ 7,486.68
IRR 16%
MIRR 14%
PI 1.14
PBP 4.34
DPBP 6.51
IRR is greater than cost capital (12%) and PI is more than one for both the projects.

NPV,IRR and PI value of project X is more than that of project Y.

ally exclusive, NPV criteria should be selected as evaluation criteria.


year CFBDBT Depreciation CFADBT Tax @30% CFADAT CFBDAT
1 40000 30000 10000 3000 7000 37000
2 40000 30000 10000 3000 7000 37000
3 40000 30000 10000 3000 7000 37000
4 40000 30000 10000 3000 7000 37000
5 40000 30000 10000 3000 7000 37000

PBP 4.05
ARR 0.05
NPV ₹ -16,623.28
PI 0.89
IRR 7%
-150000
dep 30000 37000
37000
37000
37000
37000
1)
ROI (Net profit/total investment)*100 80

64.2

pv of CF
npv

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