Worksheet

Information given:
( a ) The company is considering an investment costing $500,000
( b ) It is estimated the benefit will last for 5 years.
( c ) The company's minimum return on investment required is 15%
( e ) The company estimates annual cash inflows of $145,000
1. Calculate PV of cash outflows
Cash Flows
0 $ (500,000)
1 $ 145,000
2 $ 145,000
3 $ 145,000
4 $ 145,000
5 $ 145,000

Present Value
Factors @ 15%

Amount

X
X
X
X
X

=
=
=
=
=
-

2. Calculate NPV:
=

3. Calculate the Profitability Index:

=

4. Calculate Payback Period:

=
5. Calculate Internal Rate of Return
PVCO
$ 500,000

=
=

PVCI * Factor (%, yrs)

$ 145,000
x

Present Value of an Annuity of $1 per period for n periods

Period
1%
2%
3%
4%
1
0.9901
0.9804
0.9709
0.9615
2
1.9704
1.9416
1.9135
1.8861
3
2.9410
2.8839
2.8286
2.7751
4
3.9020
3.8077
3.7171
3.6299
5
4.8534
4.7135
4.5797
4.4518
6
5.7955
5.6014
5.4172
5.2421
7
6.7282
6.4720
6.2303
6.0021
8
7.6517
7.3255
7.0197
6.7327

F(%, 5yrs)

5%
0.9524
1.8594
2.7232
3.5460
4.3295
5.0757
5.7864
6.4632

12%
0.8929
1.6901
2.4018
3.0373
3.6048
4.1114
4.5638
4.9676

14%
0.8772
1.6467
2.3216
2.9137
3.4331
3.8887
4.2883
4.6389

18%
0.8475
1.5656
2.1743
2.6901
3.1272
3.4976
3.8115
4.0776

Period
1
2
3
4
5
6
7
8

20%
0.8333
1.5278
2.1065
2.5887
2.9906
3.3255
3.6046
3.8372

PV Table 10-1 Present Value of $1

due at the end of n periods
10%
12%
14%
15%
0.9091
0.8929
0.8772
0.8696
0.8264
0.7972
0.7695
0.7561
0.7513
0.7118
0.6750
0.6575
0.6830
0.6355
0.5921
0.5718
0.6209
0.5674
0.5194
0.4972
0.5645
0.5066
0.4556
0.4323
0.5132
0.4523
0.3996
0.3759
0.4665
0.4039
0.3506
0.3269

16%
0.8621
0.7432
0.6407
0.5523
0.4761
0.4104
0.3538
0.3050

Worksheet
Information given:
( a ) The company is considering an investment costing $500,000
( b ) It is estimated the benefit will last for 5 years.
( c ) The company's minimum return on investment required is 15%
( e ) The company estimates annual cash inflows of $145,000
1. Calculate PV of cash outflows
Cash Flows
0 $ (200,000)
1 $ 50,000
2 $ 50,000
3 $ 50,000
4 $ 50,000
5 $ 50,000

Present Value
Factors @ 15%
X
X
X
X
X

Amount

0.8929
0.7972
0.7118
0.6355
0.5674
-

=
=
=
=
=
$

2. Calculate NPV:

180,240
(200,000)
(19,760)

3. Calculate the Profitability Index:

$
$

180,240
200,000
0.90

$
$

200,000
50,000
4.00

4. Calculate Payback Period:

=

44,645
39,860
35,590
31,775
28,370
180,240

5. Calculate Internal Rate of Return

PVCO
$ 500,000
$ 500,000

=
=
/

PVCI * Factor (%, yrs)

$ 145,000
x
$ 145,000
=

Present Value of an Annuity of $1 per period for n periods

Period
1%
2%
3%
4%
1
0.9901
0.9804
0.9709
0.9615
2
1.9704
1.9416
1.9135
1.8861
3
2.9410
2.8839
2.8286
2.7751
4
3.9020
3.8077
3.7171
3.6299
5
4.8534
4.7135
4.5797
4.4518
6
5.7955
5.6014
5.4172
5.2421
7
6.7282
6.4720
6.2303
6.0021

F(%, 5yrs)
3.45 Gives you the factor, you have the years

5%
0.9524
1.8594
2.7232
3.5460
4.3295
5.0757
5.7864

12%
0.8929
1.6901
2.4018
3.0373
3.6048
4.1114
4.5638

14%
0.8772
1.6467
2.3216
2.9137
3.4331
3.8887
4.2883

18%
0.8475
1.5656
2.1743
2.6901
3.1272
3.4976
3.8115

8
Period
1
2
3
4
5

7.6517

7.3255

7.0197

6.7327

6.4632

4.9676

4.6389
13.79%
0.87881185
0.77231026
0.67871541
0.59646314
0.52417887
3.45047953

4.0776

Period
1
2
3
4
5
6
7
8

have the years

20%
0.8333
1.5278
2.1065
2.5887
2.9906
3.3255
3.6046

PV Table 10-1 Present Value of $1

due at the end of n periods
10%
12%
14%
15%
0.9091
0.8929
0.8772
0.8696
0.8264
0.7972
0.7695
0.7561
0.7513
0.7118
0.6750
0.6575
0.6830
0.6355
0.5921
0.5718
0.6209
0.5674
0.5194
0.4972
0.5645
0.5066
0.4556
0.4323
0.5132
0.4523
0.3996
0.3759
0.4665
0.4039
0.3506
0.3269

16%
0.8621
0.7432
0.6407
0.5523
0.4761
0.4104
0.3538
0.3050

3.8372