Net Present Value and Discount Rate

When the cash flows are uniform
The cost of a proposal is $ 10,000. The cash flows are as follows:
Year Cash flows
1 2500
2 2500
3 2500
4 2500
5 2500
6 2500
Calculate Pay Back Period (PBP)

When the cash flows are not uniform
1. There are two Proposals. Proposal A and Proposal B. Both cost the amount of $ 60,000. The discount rate is 10%. The cash flows before depreciation and tax are as follows:
Year Proposal A Proposal B $ $
0 (60,000) (60,000)
1 18,000 19,000
2 15,000 17,000
3 18,000 19,000
4 16,000 14,000
5 19,000 15,000
6 14,000 13,000

Evaluate the above proposals according to:
1. Pay Back Period.
2. Accounting Rate of Return (ARR)
3. Net present value method (NPV)

Proposal A is better than B, because ARR and NPV are higher than Proposal B

2. There are two Proposals. Proposal A and Proposal B. Proposal A costs $ 80,000 and Proposal B costs $ 100,000. The discount rate is 10%. The cash flows before depreciation and tax are as follows:
Year Proposal A Proposal B $ $
1 13,000 15,000
2 15,000 14,000
3 18,000 19,000
4 16,000 16,000
5 19,000 13,000
6 14,000 13,000
7 16,000 19,000
8 20,000 15,000
9 0 18,000
10 0 17,000
Evaluate the above proposals according to:
1. ARR
2. NPV
3. Pay Back Period

We can select Proposal A, because ARR, NPV and PBP are positive and reject Proposal B

3.There are two Proposals. Proposal A and Proposal B. The discount rate is 8%. The cash flows before depreciation and tax are as follows: Proposal A Proposal B

Year $ $
0 (100,000) (120,000)
1 13,000 15,000
2 15,000 14,000
3 18,000 19,000
4 16,000 16,000
5 19,000 13,000
6 14,000 13,000
7 16,000 19,000
8 20,000 15,000
9