Calculate IRR for the 2 mutually exclusive projects

Cost of capital
10%
Year
0
1
2
3
4
5
PVIFA5

Period
1
2
3
4
5

Project Cost Project X Project Y

-70000
-70000
10000
50000
20000
40000
30000
20000
45000
10000
60000
10000
165000
130000
36%
2.181
2.745
40%
2.0350
2.532
PV Factor
Project X
Cash flows
36%
10000 0.735294 7352.941
20000 0.540657 10813.15
30000 0.397542 11926.27
45000 0.29231 13153.97
60000 0.214934 12896.05
56142.38

Step 1
X
Calculate fake average annuity
33000
Step 2
Calculate fake payback period
2.121212

Step 3
See the % value equivalent to Step 2 above in the PV

24%
28%
40%
0.714286
0.510204
0.364431
0.260308
0.185934

7142.857
10204.08
10932.94
11713.87
11156.07
51149.82

Since the total of cash flows is less than the Project cost of 70000
the IRR has to be lower than the above IRRs arrived at
27%
28%
0.787402 7874.016 0.78125
7812.5
0.620001 12400.02 0.610352 12207.03
0.48819 14645.7 0.476837 14305.11
0.384402 17298.07 0.372529 16763.81
0.302678 18160.7 0.291038 17462.3
70378.51
68550.75
Since the NPV is close to 70000 (project cost) the IRR will falll between 27% and 28%
1
2
3
4
5

IRR

Check

Take IRR as
10000
20000
30000
45000
60000

A
B
A/B
IRR %

378.5109
1827.76
0.20709
27.20709
27.20%

50000
40000
20000
10000
10000

Y
26000

2.692308

alent to Step 2 above in the PV of interst factor for annuity table for 5th year

Project Y
24%
0.806452 40322.58
0.650364 26014.57
0.524487 10489.75
0.422974 4229.736
0.341108 3411.077
84467.71

28%
0.78125 39062.5
0.610352 24414.06
0.476837 9536.743
0.372529 3725.29
0.291038 2910.383
79648.98

Since the total of cash flows is more than the projec t cost of 70000
the IRR has to be higher than the above IRRs arrived at
Take IRR as
1
2
3
4
5

38%
36764.71 0.724638 36231.88
21626.3
0.5251 21003.99
7950.845 0.380507 7610.142
2923.105 0.27573 2757.298
2149.342 0.199804 1998.042
71414.29
69601.36
Since the NPV is close to 70000 (project cost) the IRR will falll between 36% and 38%
IRR

50000
40000
20000
10000
10000

A
B
A/B
IRR %
Check

36%
0.735294
0.540657
0.397542
0.29231
0.214934

1414.294
1812.939
0.780112
37.21989
37.55%

One Project is doing poorly and is being replaced by the following three mutually exclusive projects
Project Cost
200000
Year
0
1
2
3
4
5

Project Cost Project X Project Y Project Z

-200000 -200000
-200000
50000
80000
100000
50000
80000
100000
50000
80000
10000
55000
30000
190000
395000
270000
210000

Calculate IRR

Project X
28%
0.78125 39062.5
0.610352 30517.58
0.476837 23841.86
0.372529 20489.1
0.291038 55297.28
169208.3

Since the total of the cash flows is low

take 20 and 22

Average fake annuity

Fake payback period

79000
67500
2.531646 2.962963

70000
2.86

The corresponding % value for 5 th year in the PVIFA table is

28%
19%
20%
24%
Project X
2.532
Project Y
3.052
2.991
Project Z
2.991
2.745

Project Y
19%
80000
80000
80000
30000

14%
15%
1
0.840336 67226.89
0.877193 70175.44 0.869565
2
0.706165 56493.19
0.769468 61557.4 0.756144
3
0.593416 47473.27
0.674972 53997.72 0.657516
4
0.498669 14960.06
0.59208 17762.41 0.571753
186153.4
203493
Since the total of the cash flows is lower than the project cost of 200000 the IRR should be lower than 19%
Take 14% and 15%

Project Z

20%
5%
3%
100000 0.833333 83333.33
0.952381 95238.1 0.970874
100000 0.694444 69444.44
0.907029 90702.95 0.942596
10000 0.578704 5787.037
0.863838 8638.376 0.915142
158564.8
194579.4
Since the total of the cash flows is lower than the project cost of 200000 the IRR should be lower than 20%
Take 5% and 3%
IRR
498.3861477
5918.967078
0.084201541
IRR
3.08%
1
2
3

Check

3.16%

sive projects

22%
0.819672
0.671862
0.550707
0.451399
0.369999

40983.6
33593.1
27535.3
24826.9
70299.9
197239

20%
0.8333333
0.6944444
0.5787037
0.4822531
0.4018776

41666.67
34722.22
28935.19
26523.92
76356.74
208204.7

IRR
8204.733
10965.85
0.748207
20.75%
21.48% Check

otal of the cash flows is lower than the project cost of 200000 the IRR should be lower than 28%

69565.22
60491.49
52601.3
17152.6
199810.6

97087.38
94259.59
9151.417
200498.4

IRR
3492.9705
3682.3638
0.9485675
14.95%
14.95% check

Cost of Machinery
expected life
PAT

50000
5 SLM
5000 per year

Depreciation Schedule
Year
Op Block
Dep
Cl Block
Cahs Flows
PAT
Add; Dep
FCF
IRR

1
50000
10000
40000

5000
10000
15000
-50000
15000
Average CF
15000
Machinery Cost
50000
Fake payback period
3.333333
Corresponding value in Annuity table in 5th year
14%
15%
3.433
3.352

PVF @14%

5000
10000
15000
15000

2
40000
10000
30000

3
30000
10000
20000

4
20000
10000
10000

5
10000
10000
0

5000
10000
15000
15000

5000
10000
15000
15000

5000
10000
15000
15000

15000
15000
15000
15000
15000
0.877192982 0.769468 0.674972 0.59208 0.519369
13157.89474 11542.01 10124.57 8881.204 7790.53 51496.21

PVF @ 15%

0.869565217 0.756144 0.657516 0.571753 0.497177

13043.47826 11342.16 9862.743 8576.299 7457.651 50282.33

IRR

1496.214533
1213.888063
1.232580317
15.23%

Check

15.24%