Project A 0 1 2

10% -9 6 5
3.59204 -9 5.45455 4.13223140496
Project B 0 1 2
10% -7.5 2 2
-7.5 1.81818 1.65289256198
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
₹4.95 ₹5.34 go 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 ₹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
That 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%

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

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% 20%
₹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)
PV

15% 20% 25% 30%

 1 2 3 4 5 6
12000 12000 12000 12000 12000 12000
11111.111111 10288.0658 9525.9868922 8820.35823 8166.99836 7562.03552
55474.5559675
1 2 3 4 5 6
40000 42000 44100 46305 48620.25 51051.2625
2000 4260 6805.8 9665.514 12869.7676 16451.9122

1 2 3 4
20000
1 2 3 4 5
 7 8 9 10 11 12 13
53603.8256 56284.0169 59098.2178 62053.1286 65155.7851 68413.5743 71834.253
20448.2564 24898.3178 29845.0941 35335.358 41419.9759 48154.2527 55598.3056

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
75425.9657 79197.264 83157.1272 87314.9835 91680.7327 96264.7693 101078.008
63817.4683 72882.729 82871.2037 93866.6491 105960.018 119250.058 133843.963

12
19999.3132
13 14 15 16 17 18 19
 21 22 23 24 25 26 27
106131.908 111438.504 117010.429 122860.95 129003.998 135454.198 142226.908
149858.075 167418.646 186662.659 207738.72 230808.017 256045.368 283640.343
20 21 22 23 24 25 26
 28 29 30
149338.253 156805.166 164645.424
313798.483 346742.62 382714.301
27 28 29 30 31 32 33
34 35 1 2 3 4 5
2000000 178000.6 178000.6 178000.6 178000.6 178000.6
171154.423 152606.824 141302.615 130835.755 121144.217
 6 7 8 9 10 11 12
178000.6 178000.6 178000.6 178000.6 178000.6 178000.6 178000.6
25.974026 0.56741719 96168.1854 89044.6161 82448.7186 76341.4062 70686.4872
14.7381088
11.2359172
178000.6
 13 14 15
178000.6 178000.6 178000.6
65450.4511 60602.2695 56113.2125
 Let Say Discount rate
6%
Machine A

Years - 1 2 3
(150,000)
Depic (50,000) (50,000) (50,000)
AMC (5,000) (5,000) (5,000)
DEPIC 50,000 50,000 50,000
Outflows (150,000) (5,000) (5,000) (5,000)

PV (150,000) (4,717) (4,450) (4,198)

NPV (163,365)

Now at this point we cannot decide which machine is

See Below

(Per Year)/(1+.06)^1 (Per Year)/(1+.06)^2 (Per Year)/(1+.06)^3

17 0.07
14
3 (163,365)
(61,116)

Machine A (61,116)

61,116 61,116 61,116

Checking
57,657 54,393 51,315
163,365
1 2 3
 Machine B

Years -
(100,000)

(100,000)

(100,000)
(111,000)

cide which machine is gud. We can find it out by calculating per year costs

(163,365)

Per year itna kharch krna pdega

Per Year pe lao

Per Year pe lao
 1 2

(50,000) (50,000)
Assumed Machine purchased at (1 Jan 2019 let suppose)
31 ko I paid annual cost … This is 1 Year and then next ye
(6,000) (6,000) fir annual cost dunga so now it is 2 years
50,000 50,000
(6,000) (6,000)

(5,660) (5,340)

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

This Explains Machi
only cost i
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

pe lao
pe lao
t (1 Jan 2019 let suppose) , then December
s 1 Year and then next year 31 dec ko mai
s 2 years

This Explains Machine B is GOOOOOD ( Assuming

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

Years - 1 2 3
(15,000)
Depic (5,000) (5,000) (5,000)
Outflows (15,000) (5,000) (5,000) (5,000)

PV @6% (15,000) (4,717) (4,450) (4,198)

NPV (28,365)

Now at this point we cannot decide which machine is

See Below

(Per Year)/(1+.06)^1 (Per Year)/(1+.06)^2 (Per Year)/(1+.06)^3

Find this Peryear
17 0.07
14
3 (28,365)
(10,612)

Machine A (10,612)

10,612 10,612 10,612

Checking
10,011 9,444 8,910
28,365
1 2 3
 Machine B

Years -
(10,000)

(10,000)

(10,000)
(21,000)

cide which machine is gud. We can find it out by calculating per year costs

(28,365)

Per year itna kharch krna pdega

Per Year pe lao

 1 2

(6,000) (6,000)
(6,000) (6,000)

(5,660) (5,340)

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

This Explains Machi
Find this Peryear
only cost i
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

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

0.94339622642 0.88999644 0.83961928 ₹6,384.10

0.94339622642 0.88999644 0.83961928 0.79209366 ₹9,796.32
0.94339622642 0.88999644 0.83961928 0.79209366 0.74725817 ₹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 1.16666666666667 1
Project B 625 600 1.04166666666667 3
Project C 650 580 1.12068965517241 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