Project A 0 1 2

10% -9 6 5
3.59204 -9 5.45455 4.132231405
Project B 0 1 2
10% -7.5 2 2
-7.5 1.81818 1.652892562
3.22219

Discount Rate

N 1%
N 2%
N 3%
N 4%
N 5%
N 6%
Y 7%
Y 8%
Y 9%
Y 10%
Y 11%
Y 12%
Y 13%
Y 14%
Y 15%
Y 16%
Y 17%
Y 18%
Y 19%
Y 20%
 3 4 5
4 0 0
3.0052592 0ç
3 4 5
1.8 7 1.8
1.3523666 4.78109 1.11766

Project A Project B
NPV A NPV B

₹5.72 ₹6.63
₹5.46 ₹6.18
₹5.20 ₹5.75 Ab agar Project ka discount rate 10% hai toh I will go
₹4.95 ₹5.34 by Project A
₹4.70 ₹4.94
₹4.47 ₹4.57
₹4.24 ₹4.21
₹4.02 ₹3.87
₹3.80 ₹3.54
₹3.59 ₹3.22
₹3.39 ₹2.92
₹3.19 ₹2.63
₹3.00 ₹2.35 Ab agar Project ka discount rate 10% hai toh I will go
₹2.81 ₹2.09
₹2.63 ₹1.83
 Ab agar Project ka discount rate 10% hai toh I will go

₹2.45 ₹1.59
₹2.28 ₹1.35
₹2.11 ₹1.12
₹1.95 ₹0.91
₹1.79 ₹0.70
 ₹7.00

₹6.00

hai toh I will go ₹5.00

₹4.00

₹3.00
hai toh I will go

₹2.00
hai toh I will go

₹2.00

₹1.00

₹0.00
0% 5%
Chart Title
NPV A NPV B
5% 10%
Chart Title
NPV A NPV B
15% 20%
20% 25%
 0 (500,000)
1 281,250 IRR
2 281,250
3 281,250 IRR
4 281,250
5 281,250
6 (937,500)

Why is this happening?

Each time there is a different sign then there will be that many IRR's. Green boxes signif
is why it cannot be a good measure.Use NPV

Discount
0 (500,000) 0%
1 281,250 1%
2 281,250 2%
3 281,250 3%
4 281,250 4%
5 281,250 5%
6 (937,500) 6%
7%
8%
9%
IRR 2.6844% 10%
27.7417% 11%
12%
13%
14%
15%
16%
17%
18%
19%
20%
21%
22%
23%
 24%
To be precise 25%
26%
27%
28%

-
(500,000)
(500,000)
0

-
(500,000)
(500,000)
0
 3% 5% Let say we assume IRR to be
3% 10%
28% 15%
28% 20%

hat many IRR's. Green boxes signify sign changes which happened twice so 2 IRRs. That

NPV
(₹31,250.00) NPV
(₹17,960.27) ₹40,000.00
(₹6,679.10)
₹2,816.66
₹30,000.00
₹10,726.12
₹17,227.03
₹20,000.00
₹22,478.12
₹26,621.21
₹29,783.03 ₹10,000.00
₹32,076.88
₹33,604.06 ₹0.00
0% 5% 10% 15% 2
₹34,455.18
₹34,711.28
( ₹10,000.00)
₹34,444.84
₹33,720.73
( ₹20,000.00)
₹32,596.96
₹31,125.41
₹29,352.50 ( ₹30,000.00)
₹27,319.73
₹25,064.18 ( ₹40,000.00)
₹22,619.01
₹20,013.80
₹17,274.99
₹14,426.13
₹11,488.23
₹8,480.00
₹5,418.06
₹2,317.21
(₹809.47)

1 2 3 4 5 6
281,250 281,250 281,250 281,250 281,250 (937,500)
273,898 266,737 259,764 252,973 246,360 (799,732)

1 2 3 4 5 6
281,250 281,250 281,250 281,250 281,250 (937,500)
220,171 172,356 134,926 105,624 82,685 (215,762)
 NPV

0% 15% 20% 25% 30%

 1 2 3 4 5 6
12000 12000 12000 12000 12000 12000
11111.111111 10288.06584 9525.9868922 8820.358234 8166.998364 7562.035523
55474.55596753
1 2 3 4 5 6
40000 42000 44100 46305 48620.25 51051.2625
2000 4260 6805.8 9665.514 12869.76762 16451.91215

1 2 3 4
20000
1 2 3 4 5
 7 8 9 10 11 12 13
53603.82563 56284.01691 59098.21775 62053.12864 65155.78507 68413.57432 71834.25304
20448.25641 24898.31777 29845.09408 35335.35803 41419.97593 48154.25272 55598.30559

5 6 7 8 9 10 11
12418 13659.8 15025.78 16528.358 18181.1938
6 7 8 9 10 11 12
 14 15 16 17 18 19 20
75425.96569 79197.26398 83157.12718 87314.98354 91680.73271 96264.76935 101078.0078
63817.46832 72882.72899 82871.20366 93866.64913 105960.0177 119250.0576 133843.9626

12
19999.31318
13 14 15 16 17 18 19
 21 22 23 24 25 26 27
106131.9082 111438.5036 117010.4288 122860.9502 129003.9977 135454.1976 142226.9075
149858.075 167418.6462 186662.6593 207738.7196 230808.017 256045.3683 283640.3431
20 21 22 23 24 25 26
 28 29 30
149338.2529 156805.1655 164645.4238
313798.4832 346742.6201 382714.3009
27 28 29 30 31 32 33
34 35 1 2 3 4 5
2000000 178000.5997 178000.5997 178000.5997 178000.5997 178000.5997
171154.4228 152606.8241 141302.6149 130835.7546 121144.2172
 6 7 8 9 10 11 12
178000.5997 178000.5997 178000.5997 178000.5997 178000.5997 178000.5997 178000.5997
25.97402597 0.567417188 96168.18543 89044.61614 82448.71865 76341.40616 70686.48718
14.73810877
11.2359172
178000.5997
 13 14 15
178000.5997 178000.5997 178000.5997
65450.45109 60602.26953 56113.21253
 Let Say Discount rate
6%
Machine A

Years - 1 2
(150,000)
Depic (50,000) (50,000)
AMC (5,000) (5,000)
DEPIC 50,000 50,000
Outflows (150,000) (5,000) (5,000)

PV (150,000) (4,717) (4,450)

NPV (163,365)

Now at this point we cannot decide which machine

See Below

(Per Year)/(1+.06)^1 (Per Year)/(1+.06)^2

17 0.07
14
3

Machine A

61,116 61,116
Checking
57,657 54,393

1 2
 Machine B

3 Years

(50,000)
(5,000)
50,000
(5,000)

(4,198)

at this point we cannot decide which machine is gud. We can find it out by calculating per year costs

(Per Year)/(1+.06)^3 (163,365)

(163,365)
(61,116) Per year itna kharch krna pdega

(61,116)

61,116
51,315
163,365
3

Per Year pe
Per Year pe
 - 1 2
(100,000)
(50,000) (50,000)
Assumed Machine purchased at (1 Jan 20
ko I paid annual cost … This is 1 Year and
(6,000) (6,000) annual cost dunga so now it is 2 years
50,000 50,000
(100,000) (6,000) (6,000)

(100,000) (5,660) (5,340)

(111,000)

(Per Year)/(1+.06)^1 (Per Year)/(1+.06)^2 (111,000)

17 0.07
15
2 (111,000)
(60,544)

Machine B (60,544)

60,544 60,544
1 2
57,117 53,884
111,000

ar pe lao
ar pe lao
urchased at (1 Jan 2019 let suppose) , then December 31
… This is 1 Year and then next year 31 dec ko mai fir
now it is 2 years

This Explains Machine B is GOOOOOD ( Assuming only

cost is to be considered)
 Discount rate
6%
Machine A

Years - 1 2
(15,000)
Depic (5,000) (5,000)
Outflows (15,000) (5,000) (5,000)

PV @6% (15,000) (4,717) (4,450)

NPV (28,365)

Now at this point we cannot decide which machine

See Below

(Per Year)/(1+.06)^1 (Per Year)/(1+.06)^2

17 0.07
14
3

Machine A

10,612 10,612
Checking
10,011 9,444

1 2
 Machine B

3 Years

(5,000)
(5,000)

(4,198)

at this point we cannot decide which machine is gud. We can find it out by calculating per year costs

(Per Year)/(1+.06)^3 (28,365)

Find this Peryear

(28,365)
(10,612) Per year itna kharch krna pdega

(10,612)

10,612
8,910
28,365
3

Per Year pe
 - 1 2
(10,000)
(6,000) (6,000)
(10,000) (6,000) (6,000)

(10,000) (5,660) (5,340)

(21,000)

(Per Year)/(1+.06)^1 (Per Year)/(1+.06)^2 (21,000)

Find this Peryear
17 0.07
15
2 (21,000)
(11,454)

Machine B (11,454)

11,454 11,454
1 2
10,806 10,194
21,000

ar pe lao
This Explains Machine B is GOOOOOD ( Assuming only
cost is to be considered)
 Discount Rate 6%

Old Machine - 1 2 New Machine -

- 4,000 4,000 (15,000)

Case 1 In this case I purchase machine at Present so now old

machine is gone

Year 0 1 2 3
Only New (15,000) 8,000 8,000 8,000
(₹15,000.00) ₹7,547.17 ₹7,119.97 ₹6,716.95
NPV ₹6,384.10 16.66666667
0.839619283
13.99365472
Case 2 In this case I purchase machine in first year 2.673011949
21384.0956
10,384
Year 0 1 2 3 4 9,796.32
Old - 4,000 - - -
New - (15,000) 8,000 8,000 8,000 9,242
- (10,377) 7,120 6,717 6,337 3,774
NPV ₹9,796.32 13,015

Case 3 In this case I purchase machine in second year

Year 0 1 2 3 4 5
Old 0 4000 4000
New 0 0 (15,000) 8000 8000 8000
- 3,774 (9,790) 6,717 6,337 5,978
NPV ₹13,015.39
 1 2 3
8,000 8,000 8,000

Yearly Basis
Case 1
(15,000.00) 7,547.17 7,119.97 6,716.95 Case 2
Case 3

C1
C2
Now first I need to understand that I C3
cannot compare these NPVs as years are
different so don’t directly compare NPV
what I can do is calculate per year cash
inflow to get a fair idea on yearly basis to
make same base.
Remember that do not compare these
time period is different calculate yearly
basis
c/(1+.06)^1 c/(1+.06)^2 c/(1+.06)^3 ₹6,384.10
c/(1+.06)^1 c/(1+.06)^2 c/(1+.06)^3 c/(1+.06)^4 ₹9,796.32
c/(1+.06)^1 c/(1+.06)^2 c/(1+.06)^3 c/(1+.06)^4 c/(1+.06)^5 13,015

0.9433962264 0.88999644 0.839619283 ₹6,384.10

0.9433962264 0.88999644 0.839619283 0.792093663 ₹9,796.32
0.9433962264 0.88999644 0.839619283 0.792093663 0.747258173 ₹13,015.39

Annual Basis Old Machine Decision

₹2,388 ₹4,000 Reject
₹3,665 ₹4,000 Reject
₹4,869 ₹4,000 Accept
Annual Basis Old Machine
₹2,388.35 4000
₹3,664.90 4000
₹4,869.19 4000
Example Budget 800

NPV Upfront cost Profitability Index Rank

Project A 875 750 1.1666666667 1
Project B 625 600 1.0416666667 3
Project C 650 580 1.1206896552 2

These
outflows
should also
be at PV

BUDGET 1,000,000

PROJECT COST PV OF FUTURE CASH F

B 400,000 700,000
A 200,000 300,000
F 100,000 140,000
D 200,000 275,000
E 100,000 130,000
C 500,000 630,000

NPV OF SELECTION
Invest as per
ranks

NPV PI RANK INVEST LEFT

300,000 1.75 1 400,000 600,000
100,000 1.50 2 200,000 400,000
40,000 1.40 3 100,000 300,000
75,000 1.38 4 200,000 100,000
30,000 1.30 5 100,000 -
130,000 1.26 6

545,000