| Schedule of Cash Flows Discounted at 10% [Project "A"] | ||||
| Year | Outflows | Inflows | Net | Discounted |
| 0 | $250,000.00 |
| -$250,000.00 | -$250,000.00 |
| 1 |
| $30,000.00 | $30,000.00 | $27,272.73 |
| 2 |
| $50,000.00 | $50,000.00 | $41,322.31 |
| 3 |
| $60,000.00 | $60,000.00 | $45,078.89 |
| 4 |
| $90,000.00 | $90,000.00 | $61,471.21 |
| 5 |
| $100,000.00 | $100,000.00 | $62,092.13 |
| 6 |
| $120,000.00 | $120,000.00 | $67,736.87 |
| Totals: | $250,000.00 | $450,000.00 | $200,000.00 | $54,974.14 |
| Schedule of Cash Flows Discounted at 10% [Project "B" ] | ||||
| Year | Outflows | Inflows | Net | Discounted |
| 0 | $250,000.00 |
| -$250,000.00 | -$250,000.00 |
| 1 |
| $70,000.00 | $70,000.00 | $63,636.36 |
| 2 |
| $80,000.00 | $80,000.00 | $66,115.70 |
| 3 |
| $90,000.00 | $90,000.00 | $67,618.33 |
| 4 |
| $40,000.00 | $40,000.00 | $27,320.54 |
| 5 |
| $20,000.00 | $20,000.00 | $12,418.43 |
| 6 |
| $10,000.00 | $10,000.00 | $5,644.74 |
| Totals: | $250,000.00 | $310,000.00 | $60,000.00 | -$7,245.90 |
Profitability Index for Project "A"
Profitability Index = 1 + (Net Present Value / Initial Investment Required)
Profitability Index = 1 + (54,974.14/250,000)
Profitability Index = 1 +0.2199
Profitability Index = 1.21
Profitability Index for Project "B"
Profitability Index = 1 + (Net Present Value / Initial Investment Required )
Profitability Index = 1 + (Net Present Value / Initial Investment Required )
Profitability Index = 1 + (-7245.90/250000)
Profitability Index = 1 – 0.029
Profitability Index = 0.972
Under profitability index if the PI is more than 1 the project is accepted on the other hand if it is less than 1 it is rejected. Under net present value if NPV is positive project is accepted else it is rejected.
Only the Net Present Value decision rule will always lead to the correct decision when choosing among Mutually Exclusive Projects
For mutually exclusive projects, the decision rule is to choose the project with the greatest NPV
On Mon, Jun 24, 2013 at 12:18 AM, Waqas Ahmed Tanoli <waqasahmedtanoli@gmail.com> wrote:
> On Sun, Jun 23, 2013 at 10:55 PM, Shamim Bano <mc110404351@gmail.com> wrote:
>> Thnx
>> mera tu payback period 4.8 and 3.75 aa raha hy
>>
>> PI kasy nikalna hy
>>
>>
>> On Sun, Jun 23, 2013 at 9:02 AM, Yumiko Shahid <sweetyumiko745@gmail.com>
>> wrote:
>>>
>>> ye check krna or idea dey do mujhy ma kr loo gi solve
>>>
>>> --
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>>
>>
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--
We say, "Be one as Pakistani Nation and grow up for Pakistan's Future". Wish you all the best. Join www.vuaskari.com,
To post to this group, send email to vuaskari_com@googlegroups.com
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