Question

Consider the following cash flows on two mutually exclusive projects for A- Z motorcars.Assuming both projects require an annual return of 11 percent.

year	AZM Mini-Suv	AFL Full-Suv
0	- 470000	- 820000
1	324000	354000
2	188000	428000
3	154000	294000

A    What is the pay back period for each projects

B What is the NPV for each project

C What is the IRR for each project

Please note Do not do intermediate and run your answers to 2 decimal place

Answer 1

A.
				AZM Mini-Suv		AFL Full-Suv
	Payback Period			1.78 Years		2.13	Years
	Working:
	Payback Period is the time upto which initial cost is recovered back.
				AZM Mini-Suv		AFL Full-Suv
	Year			Cash flow	Cumulative cash flow	Cash flow	Cumulative cash flow
	0			$       -4,70,000	$     -4,70,000	$ -8,20,000	$ -8,20,000
	1			3,24,000	-1,46,000	3,54,000	-4,66,000
	2			1,88,000	42,000	4,28,000	-38,000
	3			1,54,000	1,96,000	2,94,000	2,56,000
	Payback period		=	1+(146000/188000)		=	2+(38000/294000)
			=	1.78		=	2.13
B.				AZM Mini-Suv		AFL Full-Suv
		NPV		$ 87,080		$      61,264
		Working:
				AZM Mini-Suv		AFL Full-Suv
	Year		Present Value of 1	Cash flow	Present Value	Cash flow	Present Value
	0		1.0000	$       -4,70,000	$     -4,70,000	$ -8,20,000	$ -8,20,000
	1		0.9009	3,24,000	$      2,91,892	3,54,000	$ 3,18,919
	2		0.8116	1,88,000	$      1,52,585	4,28,000	$ 3,47,374
	3		0.7312	1,54,000	$      1,12,603	2,94,000	$ 2,14,970
	NPV				$          87,080		$      61,264
C.
				AZM Mini-Suv		AFL Full-Suv
		IRR		23.07%		15.36%
	Working:
				AZM Mini-Suv		AFL Full-Suv
	Year			Cash flow		Cash flow
	0			$       -4,70,000		$ -8,20,000
	1			3,24,000		3,54,000
	2			1,88,000		4,28,000
	3			1,54,000		2,94,000
	IRR			=irr(E41:E44)		=irr(G41:G44)
				23.07%		15.36%