1.A choice is to be made between two competing proposals which require an equal investment of Rs.

50000 and are expected

project II
Project I Year Cash Flow
End of year 1 25000 1 10000
End of year 2 15000 2 12000
End of year 3 10000 3 18000
End of year 4 NIL 4 25000
End of year 5 12000 5 8000
End of year 6 6000 6 4000
The cost of capital of the company is 10%.
Which project proposal should be chosen and why?
Evaluate the project proposal under:
(a) Net Present Value Method (b) Excess Present Value Index Method

2. Project X initially costs Rs.25000. It generates the following cash inflows:

Year Cash inflows Interest rate 10%

1 9000
2 8000
3 7000
4 6000
5 5000

3.Initial Investment Rs.60,000

Life of the assets 4 years
Estimated net annual cash flows:(Rs.)
I Year 15000
II Year 20000
III Year 30000
IV Year 20000

Calculate IRR.
Rs.50000 and are expected to generate net cash flows as under:
Q.1 Project I
Year Cash Inflows Present Value Formula
1 25000 22727.27 Cash flow/(1+D.R)^Year
2 15000 12396.69
3 10000 7513.15
4 NIL NIL
5 12000 7451.06
6 6000 3386.84
Total Present value of Cash inflow 53475
Less: Initial Investment/Cash out flows 50000
Net Present Value (NPV) 3475

Project II
Year Cash Inflows Present Value
1 10000 9090.91
2 12000 9917.36
3 18000 13523.67
4 25000 17075.34
5 8000 4967.37
6 4000 2257.90
Total Present value of Cash inflow 56833
Less: Initial Investment/Cash out flows 50000
Net Present Value (NPV) 6833

As NPV is greater in Project II, it is preferable.

Excess Present Value Index

Formula
Total Present Value of cash inflows × 100
Total Present Value of cash outflows

Project I 107
Project II 114
Cash flow/(1+D.R)^Year

10% Equal to NPV(10%,Cash inflow cells selected)

10%
Q.3 Year Cash inflow
-60000
1 15000
2 20000
3 30000
4 20000

At internal Rate of Return, total Present Value of Cash inflow is equal to Initial Investment is Rs.60000.
IRR 14%
q.1
Year cash inflow present valvue
1 25000 22727.27 10%
2 15000 12396.69
3 10000 7513.15
4 NIL nill
5 12000 7451.06
6 6000 3386.84
Total Present value of Cash inflow 53475.01
Less: Initial Investment/Cash out flows 50000.00
Net Present Value (NPV) 3475.01

Excess Present Value Index

Project I 106.95
Project II 113.67

q.2
Year Cash inflows present value 10%
1 9000 8181.82
2 8000 6611.57
3 7000 5259.20
4 6000 4098.08
5 5000 3104.61
Total Present value of Cash inflow 27255.28
Less: Initial Investment/Cash out flows 25000
Net Present Value (NPV) 2255.28

q.3 year cash inflow

-60000
I Year 15000
II Year 20000
III Year 30000
IV Year 20000

irr 14% 10% 11% 12%

npv ₹ 60,000.00 ₹ 66,365.00 ₹ 64,856.32 ₹ 63,400.50
 Year cash inflow present value
1 10000 9090.91
2 12000 9917.36
3 18000 13523.67
4 25000 17075.34
5 8000 4967.37
6 4000 2257.90
Total Present value of Cash inflow 56832.53
Less: Initial Investment/Cash out flows 50000.00
Net Present Value (NPV) 6832.53

13%
₹ 61,995.15