Same NPV, different payback Same NPV, different payback

End of year Investment A Investment B Investment C Investment D End of year Investment E

Now -€ 1,000,000.00 -€ 1,000,000.00 -€ 1,000,000.00 -€ 1,000,000.00 Now ###
1 € 800,000.00 € 100,000.00 € 300,000.00 € 300,000.00 1 € 900,000.00
2 € 600,000.00 € 200,000.00 € 300,000.00 € 300,000.00 2 € 800,000.00
3 € 400,000.00 € 400,000.00 € 300,000.00 € 300,000.00 3 € 800,000.00
4 € 200,000.00 € 600,000.00 € 300,000.00 € 300,000.00 4 € 800,000.00
5 € 100,000.00 € 800,000.00 € 300,000.00 € 300,000.00 5 € 900,000.00
Total Cash Flows € 2,100,000.00 € 2,100,000.00 € 1,500,000.00 € 1,500,000.00 Total Cash Flows ###
NPV at 10% € 722,361.24 € 463,269.40 8% 12% NPV at 10% € 1,185,630.64
€ 197,813.01 € 81,432.86
722,361.24

-50000 31046.0661529577
-50000 18627.6396917747
-50000
-50000
-50000
###
NPV - UNEQUAL LIVES EXAMPLES

SEQUENCE OF TWO MACHINES A

Forecasts
Timeline Now Year 1 Year 2 Year 3 Year 4
Machine 1 cash flows -$80,000 -$4,000 -$4,000
Machine 2 cash flows -$80,000 -$4,000 -$4,000
Total cash flows -$80,000 -$4,000 -$84,000 -$4,000 -$4,000
Cost of capital 10.0%
Present value of costs -$158,795

ONE MACHINE B
Forecasts
Timeline Now Year 1 Year 2 Year 3 Year 4
Cash flows -$120,000 -$3,000 -$3,000 -$3,000 -$3,000
Cost of capital 10.0%
Present value of costs -$129,510

ANNUITY EQUIVALENT

Machine A Machine B

Annuity Annuity
Original Cash Equivalent Original Cash Equivalent
flows Cash Flows flows Cash Flows
Now -$80,000 -$120,000 2708.333
Year 1 -$4,000 -$50,095 -$3,000 -$74,622
Year 2 -$4,000 -$50,095 -$3,000 -$74,622
Year 3 -$3,000 -$74,622
Year 4 -$3,000 -$74,622
Present value at 10% -$86,942 -$86,942 -$129,510 -$129,510

Cost of capital
10.0% ### ###
 Investment A Investment E
Expected Cumulative Expected Cumulative
End of year Cash Flows Cash Flows End of year Cash Flows Cash Flows
1 € 600,000.00 -€ 400,000.00 1 € 325,000.00 -€ 675,000.00
2 € 300,000.00 -€ 100,000.00 2 € 325,000.00 -€ 350,000.00
3 € 100,000.00 € - 3 € 325,000.00 -€ 25,000.00
4 € 200,000.00 € 200,000.00 4 € 325,000.00 € 300,000.00
5 € 300,000.00 € 500,000.00 5 € 325,000.00 € 625,000.00

Initial Outlay ### Initial Outlay ###

PB 3 PB 3.0769230769
3.08