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Project A Project B

Years Cash Flows Discount Factor PV Cash Flows

@20%
0 (500,000.00) 1.00 (500,000.00) (250,000.00)
1 50,000.00 0.83 41,666.67 75,000.00
2 250,000.00 0.69 173,611.11 75,000.00
3 350,000.00 0.58 202,546.30 75,000.00
4 - - - 50,000.00
5 - - - -

Net Present Value (82,175.93)

Internal Rate of Return


Formula
IRR = a% + [(P/P-(-N))*(b% - a %)]
Project C = 20% + [(68190.55/68190.55-(-9444.44))*(50
Project C = 20 % + [(68190.55/(68190.55+9444.44))*(3
Project C = 20 % + [.8783430*30%]
Project C = 20 % + 26.35029%
Project C = 46.350%

the above calculation clearly stated that only project c having ability to earn more than 20% return rest t
are getting the less than required rate of return i.e. 20% therefore their NPV is in negative vaules . In ca
negative NPV the project would not be considered in decision making. Only one project showing the po
NPV that should be selected but other things remain the same.
0.976374
25
24.40936
20
Feasible Project Assumption for IRR calculating
Project B Project C Project C
Discount PV Cash Flows Discount PV Cash Flows Discount
Factor Factor Factor
@20% @20% @50%
1.00 (250,000.00) (75,000.00) 1.00000 (75,000.00) (75,000.00) 1.00000
0.83 62,500.00 15,000.00 0.83333 12,500.00 15,000.00 0.66667
0.69 52,083.33 25,000.00 0.69444 17,361.11 25,000.00 0.44444
0.58 43,402.78 50,000.00 0.57870 28,935.19 50,000.00 0.29630
0.48 24,112.65 50,000.00 0.48225 24,112.65 50,000.00 0.19753
- - 150,000.00 0.40188 60,281.64 150,000.00 0.13169

(67,901.23) 68,190.59

))*(b% - a %)] 0.88 30 26.350445


190.55/68190.55-(-9444.44))*(50 % - 20 %)] 77,635.03
8190.55/(68190.55+9444.44))*(30 %)] 0.878348 0.3
783430*30%] 0.2635044476 26.350445
20

y to earn more than 20% return rest two project A and B


heir NPV is in negative vaules . In case of
ing. Only one project showing the positive
RR calculating
Project C
PV

(75,000.00)
10,000.00
11,111.11
14,814.81
9,876.54
19,753.09

(9,444.44)
.