Expected Cash Flows (Essay Sample)

Student’s Name:
Instructor’s Name:
Course Code & Name:
Date of Submission:
Year

Cashflow (A)

Cashflow(B)

PVF (11%)

PV(A)

PV(B)

0

($600)

($625)

1

($600)

($625)

1

($400)

$210

0.9009

($360.36)

$189.19

2

($100)

$190

0.8116

($811.6)

$154.20

3

$200

$180

0.7312

$146.24

$131.62

4

$900

$170

0.6587

$592.83

$111.98

5

$700

$220

0.5935

$415.45

$130.57

6

$999

$213

0.5346

$534.07

$113.87

7

($111)

$70

0.4817

($53.47)

$33.72

NPV

($136.84)

$240.15

1. a. Present value when rate of return is 11%
Year

Cashflow (A)

Cashflow(B)

PVF (17%)

PV(A)

PV(B)

0

($600)

($625)

1

($600)

($625)

1

($400)

$210

0.8547

($341.88)

$179.49

2

($100)

$190

0.7305

($73.05)

$138.80

3

$200

$180

0.6244

$124.88

$112.39

4

$900

$170

0.5337

$480.33

$90.73

5

$700

$220

0.4561

$319.27

$100.34

6

$999

$213

0.3898

$389.41

$83.03

7

($111)

$70

0.3332

($36.99)

$23.32

NPV

$261.97

$103.1

I will choose project B because it has positive and higher net present value of $240.15.
1. b. Present value when rate of return is 17%
I will choose project A because it has higher net present value of $261.97
Where: PVF= (1+i)-n
PV= (PVF × Cashflow)
NPV=‑PV
2. Project IRR
a. Project A
NPV=Io - ‑nt=1(Ct(1+IRR)n)
Where: NPV=0
Io=Initial investment
Ct=Cashflow
n= number of years
IRR= Internal rate of return
Year

Cashflow (A)

Cashflow(B)

1

($400)

$210

2

($100)

$190

3

$200

$180

4

$900

$170

5

$700

$220

6

$999

$213

7

($111)

$70

‑

$2188

$1253

a. Project A
0= ($2188(1+IRR)7) - $600
(1+IRR) 7=$2188$600
(1+IRR)=7$2188$600
(1+IRR)=1.203
IRR=1.203-1
IRR= 0.203 or 20.3%