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482 Corporate Finance BRILLIANT’S

These would be discounted by the present value factors of riskless rate of the return, which
is 6%.
Year C.E.C.F. P.V.F. @ 6% Discounted C.F.
1 1,80,000 0.943 1,69,740
2 2,40,000 0.890 2,13,600
3 1,05,000 0.840 88,200
4 60,000 0.792 47,520

5,19,060
Less: Cash outflow 5,00,000
NPV 19,060

Since the NPV is positive, the project should be accepted.
Illustration 5.2.7
SR Ltd. is considering investment in two mutually exclusive projects A and B. From the
following information relating to these projects, advice the company, which projects should be
accepted if it wants 15% return on investment.
SR {b{‘Q>oS> nmañn[aH$ ê$n go g‘mdoer Xmo àmoOo³Q²>g A VWm B ‘| {Zdoe H$m {dMma H$a ahr h¡& BZ àmoOo³Q²>g go
g§~§{YV {ZåZ{b{IV gyMZm go H§$nZr H$mo gwPmd Xr{OE {H$ H$m¡Z-gm àmoOo³Q> ñdrH$ma {H$¶m OmZm Mm{hE, ¶{X ¶h {Zdoe
na 15% [aQ>Z© MmhVr h¡&

Particulars Project / àmoOo³Q> Project / àmoOo³Q>
({ddaU) A (`) B (`)

Cash outflows estimated cash flows / H¡$e AmCQ>âbmo go
H¡$e âbmo H$m AZw‘mZ h¢… 50,000 50,000
(per year for 8 years) / à˶oH$ df© 8 df© Ho$ {bE
Pessimistic / {ZamemdmXr 11,000 5,000
Most likely / A{YH$ g§^mdZm 12,000 12,000
Optimistic / AmemdmXr 15,000 20,000

Solution:
Initial Outflow = ` 50,000
Sensitivity analysis of Project A on the basis of NPV: (Amount in `)
Years Condition Cash Inflow PVAF@15% PV of NPV =
(`) for 8 years CF PV – 50,000
1-8 Pessimistic 11,000 4.487 49,357 – 643