A) MACHINE ONLY OPTION

PAYBACK PV IRR
Year CF CF - Accumulated Year
0 -35000 -35000 -35000 11.49% 0
1 5000 -30000 4,464 1
2 5000 -25000 3,986 2
3 5000 -20000 3,559 3
4 5000 -15000 3,178 4
5 5000 -10000 2,837 5
6 5000 -5000 2,533 6
7 5000 0 2,262 7
8 5000 5000 2,019 8
9 5000 10000 1,803 9
10 5000 15000 1,610 10
11 5000 20000 1,437 11
12 5000 25000 1,283 12
13 5000 30000 1,146 13
14 5000 35000 1,023 14
15 5000 40000 913 15
NPV= (945.68) 16
NPV w Excel formu (₺945.68) 17
18
Payback Period is 7 years IRR (11,49%) < Cost of Capital (12%) 19
NPV is -945,68 NPV is negative. 20
IRR is 11,49% This option is not viable. 21
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B) MACHINE w SERVICE CONTRACT OPTION
perpetual calculation
CF Add. Exp. Net CF Accumulated PV
-35000 -35000 -35000 -35000
5000 -500 4500 -30500 4,017.86
5000 -500 4500 -26000 3,587.37
5000 -500 4500 -21500 3,203.01
5000 -500 4500 -17000 2,859.83
5000 -500 4500 -12500 2,553.42
5000 -500 4500 -8000 2,279.84
5000 -500 4500 -3500 2,035.57
5000 -500 4500 1000 1,817.47
5000 -500 4500 5500 1,622.75
5000 -500 4500 10000 1,448.88
5000 -500 4500 14500 1,293.64
5000 -500 4500 19000 1,155.04
5000 -500 4500 23500 1,031.28
5000 -500 4500 28000 920.79
5000 -500 4500 32500 822.13
5000 -500 4500 37000 734.05
5000 -500 4500 41500 655.40
5000 -500 4500 46000 585.18
5000 -500 4500 50500 522.48
5000 -500 4500 55000 466.50
5000 -500 4500 59500 416.52
5000 -500 4500 64000 371.89
5000 -500 4500 68500 332.05
5000 -500 4500 73000 296.47 PP 7.78
5000 -500 4500 77500 264.70 NPV 2500
5000 -500 4500 82000 236.34 IRR 12.86%
5000 -500 4500 86500 211.02
5000 -500 4500 91000 188.41 IRR can be calculated when NPV is zero
5000 -500 4500 95500 168.22
5000 -500 4500 100000 150.20
5000 -500 4500 104500 134.11
5000 -500 4500 109000 119.74 IRR (12,86%) > Cost of Capital (12%)
5000 -500 4500 113500 106.91 NPV is positive
5000 -500 4500 118000 95.46 This option is viable.
5000 -500 4500 122500 85.23
5000 -500 4500 127000 76.10
5000 -500 4500 131500 67.94
5000 -500 4500 136000 60.66
5000 -500 4500 140500 54.16
5000 -500 4500 145000 48.36
5000 -500 4500 149500 43.18
5000 -500 4500 154000 38.55
5000 -500 4500 158500 34.42
5000 -500 4500 163000 30.73
5000 -500 4500 167500 27.44
5000 -500 4500 172000 24.50
5000 -500 4500 176500 21.88
5000 -500 4500 181000 19.53
5000 -500 4500 185500 17.44
5000 -500 4500 190000 15.57
5000 -500 4500 194500 13.90
5000 -500 4500 199000 12.41
5000 -500 4500 203500 11.08
5000 -500 4500 208000 9.90
5000 -500 4500 212500 8.84
5000 -500 4500 217000 7.89
5000 -500 4500 221500 7.04
5000 -500 4500 226000 6.29
5000 -500 4500 230500 5.61
5000 -500 4500 235000 5.01
5000 -500 4500 239500 4.48
5000 -500 4500 244000 4.00
5000 -500 4500 248500 3.57
5000 -500 4500 253000 3.19
5000 -500 4500 257500 2.84
5000 -500 4500 262000 2.54
5000 -500 4500 266500 2.27
5000 -500 4500 271000 2.02
5000 -500 4500 275500 1.81
5000 -500 4500 280000 1.61
5000 -500 4500 284500 1.44
5000 -500 4500 289000 1.29
5000 -500 4500 293500 1.15
5000 -500 4500 298000 1.03
5000 -500 4500 302500 0.92
5000 -500 4500 307000 0.82
5000 -500 4500 311500 0.73
5000 -500 4500 316000 0.65
5000 -500 4500 320500 0.58
5000 -500 4500 325000 0.52
5000 -500 4500 329500 0.46
5000 -500 4500 334000 0.41
5000 -500 4500 338500 0.37
5000 -500 4500 343000 0.33
5000 -500 4500 347500 0.29
5000 -500 4500 352000 0.26
5000 -500 4500 356500 0.24
5000 -500 4500 361000 0.21
5000 -500 4500 365500 0.19
5000 -500 4500 370000 0.17
5000 -500 4500 374500 0.15
5000 -500 4500 379000 0.13
5000 -500 4500 383500 0.12
5000 -500 4500 388000 0.11
5000 -500 4500 392500 0.09
5000 -500 4500 397000 0.08
5000 -500 4500 401500 0.08
5000 -500 4500 406000 0.07
5000 -500 4500 410500 0.06
5000 -500 4500 415000 0.05
5000 -500 4500 419500 0.05
5000 -500 4500 424000 0.04
5000 -500 4500 428500 0.04
5000 -500 4500 433000 0.03
5000 -500 4500 437500 0.03
5000 -500 4500 442000 0.03
5000 -500 4500 446500 0.02
5000 -500 4500 451000 0.02
5000 -500 4500 455500 0.02
5000 -500 4500 460000 0.02
5000 -500 4500 464500 0.02
5000 -500 4500 469000 0.01
5000 -500 4500 473500 0.01
5000 -500 4500 478000 0.01
5000 -500 4500 482500 0.01
5000 -500 4500 487000 0.01
5000 -500 4500 491500 0.01
5000 -500 4500 496000 0.01
5000 -500 4500 500500 0.01
5000 -500 4500 505000 0.01
5000 -500 4500 509500 0.00
 C) MACHINE w INTERNAL ENHANCEMENT OPTION

Year CF Reinvestment
0 -35000
1 5000 -1000
2 5200 -1040
3 5408 -1082
4 5624 -1125
5 5849 -1170
6 6083 -1217
7 6327 -1265
8 6580 -1316
9 6843 -1369
10 7117 -1423
11 7401 -1480
12 7697 -1539
13 8005 -1601
14 8325 -1665
15 8658 -1732
16 9005 -1801
17 9365 -1873
18 9740 -1948
19 10129 -2026
20 10534 -2107
21 10956 -2191
22 11394 -2279
23 11850 -2370
years 24 12324 -2465
(N=c/(k-g)) 25 12817 -2563
(calculated based on the period when NPV is zero) 26 13329 -2666
(please look at L125) 27 13862 -2772
ulated when NPV is zero 28 14417 -2883
29 14994 -2999
30 15593 -3119
31 16217 -3243
Cost of Capital (12%) 32 16866 -3373
33 17540 -3508
34 18242 -3648
35 18972 -3794
36 19730 -3946
37 20520 -4104
38 21340 -4268
39 22194 -4439
40 23082 -4616
41 24005 -4801
42 24965 -4993
43 25964 -5193
44 27002 -5400
45 28083 -5617
46 29206 -5841
47 30374 -6075
48 31589 -6318
49 32853 -6571
50 34167 -6833
51 35533 -7107
52 36955 -7391
53 38433 -7687
54 39970 -7994
55 41569 -8314
56 43232 -8646
57 44961 -8992
58 46760 -9352
59 48630 -9726
60 50575 -10115
61 52598 -10520
62 54702 -10940
63 56890 -11378
64 59166 -11833
65 61532 -12306
66 63994 -12799
67 66553 -13311
68 69216 -13843
69 71984 -14397
70 74864 -14973
71 77858 -15572
72 80972 -16194
73 84211 -16842
74 87580 -17516
75 91083 -18217
76 94726 -18945
77 98515 -19703
78 102456 -20491
79 106554 -21311
80 110816 -22163
81 115249 -23050
82 119859 -23972
83 124653 -24931
84 129639 -25928
85 134825 -26965
86 140218 -28044
 87 145827 -29165
88 151660 -30332
89 157726 -31545
90 164035 -32807
91 170597 -34119
92 177421 -35484
93 184517 -36903
94 191898 -38380
95 199574 -39915
96 207557 -41511
97 215859 -43172
98 224494 -44899
99 233473 -46695
100 242812 -48562
101 252525 -50505
102 262626 -52525
103 273131 -54626
104 284056 -56811
105 295418 -59084
106 307235 -61447
107 319524 -63905
108 332305 -66461
109 345598 -69120
110 359421 -71884
111 373798 -74760
112 388750 -77750
113 404300 -80860
114 420472 -84094
115 437291 -87458
116 454783 -90957
117 472974 -94595
118 491893 -98379
119 511569 -102314
120 532032 -106406
121 553313 -110663
(continuing to infinity)
ANCEMENT OPTION

Net CF Accumulated PV
-35000 -35000 (35,000) CoC 12%
4000 -31000 3,571 growing rate% 4%
4160 -26840 3,316
4326 -22514 3,079 PP
4499 -18014 2,859 N=c/(k-g) => PV
4679 -13335 2,655 PV-I => NPV
4867 -8468 2,466 IRR
5061 -3407 2,289
5264 1857 2,126
5474 7331 1,974 IRR is bigger than CoC and NPV is 15
5693 13024 1,833 Moreover, IRR and NPV of this last o
5921 18945 1,702
6158 25103 1,581
6404 31507 1,468
6660 38168 1,363
6927 45094 1,265
7204 52298 1,175
7492 59790 1,091
7792 67582 1,013
8103 75685 941
8427 84112 874
8764 92877 811
9115 101992 753
9480 111472 699
9859 121330 650
10253 131584 603
10663 142247 560
11090 153337 520
11533 164870 483
11995 176865 448
12475 189340 416
12974 202313 387
13493 215806 359
14032 229838 333
14594 244432 310
15177 259609 287
15784 275393 267
16416 291809 248
17072 308881 230
17755 326637 214
18465 345102 198
19204 364306 184
 19972 384278 171
20771 405050 159
21602 426652 148
22466 449118 137
23365 472482 127
24299 496782 118
25271 522053 110
26282 548335 102
27333 575668 95
28427 604095 88
29564 633659 82
30746 664405 76
31976 696381 70
33255 729637 65
34585 764222 61
35969 800191 56
37408 837599 52
38904 876503 49
40460 916963 45
42079 959041 42
43762 1002803 39
45512 1048315 36
47333 1095648 34
49226 1144874 31
51195 1196068 29
53243 1249311 27
55372 1304684 25
57587 1362271 23
59891 1422162 21
62286 1484448 20
64778 1549226 19
67369 1616595 17
70064 1686659 16
72866 1759525 15
75781 1835306 14
78812 1914119 13
81965 1996083 12
85243 2081327 11
88653 2169980 10
92199 2262179 10
95887 2358066 9
99723 2457789 8
103712 2561500 8
107860 2669360 7
112174 2781535 7
116661 2898196 6
121328 3019524 6
126181 3145705 5
131228 3276933 5
136477 3413411 5
141936 3555347 4
147614 3702961 4
153518 3856479 4
159659 4016139 3
166046 4182184 3
172687 4354872 3
179595 4534466 3
186779 4721245 3
194250 4915495 2
202020 5117515 2
210101 5327615 2
218505 5546120 2
227245 5773365 2
236335 6009699 2
245788 6255487 1
255619 6511107 1
265844 6776951 1
276478 7053429 1
287537 7340966 1
299039 7640005 1
311000 7951005 1
323440 8274445 1
336378 8610823 1
349833 8960656 1
363826 9324482 1
378379 9702861 1
393514 10096376 1
409255 10505631 1
425625 10931256 1
442650 11373906 0
 7.65
50000
15000
15.43% (calculated based on the period when NPV is zero)
(please look at X125)

er than CoC and NPV is 15000, so this option is vable as well.

IRR and NPV of this last option are bigger than the second option's, so it is better for the company to go on with the third option.
o on with the third option.
 Incremental Cash Flows
Project Investment Year 1 Year 2
Add a New Window -$75,000.00 $44,000.00 $44,000.00
Update Existing Equipment -$50,000.00 $23,000.00 $23,000.00
Take Both Project -$125,000.00 $67,000.00 $67,000.00
Build a New Stand -$125,000.00 $70,000.00 $70,000.00
Rent a Larger Stand -$1,000.00 $12,000.00 $13,000.00

Discount Rate
15%

A- Using the IRR rule, which alternative(s) would you recommend?

Comparing IRRs, the bigger percentage is the better choice, So "Rent a Larger Stand" seems to be best option,

B-Using the NPV rule, which alternative(s) would you recommend?

Comparing NPVs,the bigger value is the better, So, building a new stand is the best option,

C- How do you explain any differences between the IRR and NPV rankings? Which rule
supports a better judgement?
IRR gives a rate while NPV results in value.
In order to maximize shareholders benefits in terms of company's equity, we should always consider NPV at first plac
 Year 3 IRR NPV IRR RANK NPV RANK
$44,000.00 35% $25,461.91 2 4
$23,000.00 18% $2,514.18 5 5
$67,000.00 28% $27,976.08 4 3
$70,000.00 31% $34,825.76 3 1
$14,000.00 1208% $28,469.88 1 2

ms to be best option,

n,

rule

ays consider NPV at first place , later IRR.

 210 units production level
discount rate 10%
production 210 units
End of year Time "Index" Cash flow ($mm) Sales ($mm) Deposit ($mm)
1967 0 -100
1968 1 -200
1969 2 -200
1970 3 -200 140
1971 4 -690 140
1972 5 -490 420 140
1973 6 -490 420 140
1974 7 -490 420 140
1975 8 -490 420 140
1976 9 -490 420
1977 10 420

300 units production level

discount rate 10%
production 300 units
End of year Time "Index" Cash flow ($mm) Sales ($mm) Deposit ($mm)
1967 0 -100
1968 1 -200
1969 2 -200
1970 3 -200 200
1971 4 -900 200
1972 5 -700 600 200
1973 6 -700 600 200
1974 7 -700 600 200
1975 8 -700 600 200
1976 9 -700 600
1977 10 600

True economic breakeven

cost=revenue
cost -900 investment cost
 revenue 16 /plane
cogs 14 /plane
operating profit 2 /plane
# of plane to cover investment cost - 450.00 planes

Was Tri Star Reasonable?

No, it was not. Because both IRR and NPV shows the "don't do" as a signal for this project.
Share price decreased from $70 to $3, therefore it is not a good project for shareholders of company.
evel

Net ($mm) NPV @ t=0 IRR

-100 - 100.00
-200 - 181.82 Err:523
-200 - 165.29 Err:523
-60 - 45.08 Err:523
-550 - 375.66 Err:523
70 43.46 Err:523
70 39.51 Err:523
70 35.92 Err:523
70 32.66 -31.11%
-70 - 29.69 Err:523
420 161.93 -9.09%
- 480.00 - 584.05

NPV is negative & both IRR calculated < 10%

Since the net cash flow change sign 2 times, there are 2 IRR values.

evel

Net ($mm) NPV @ t=0 IRR

-100 - 100.00
-200 - 181.82 Err:523
-200 - 165.29 Err:523
0 - Err:523
-700 - 478.11 Err:523
100 62.09 Err:523
100 56.45 Err:523
100 51.32 Err:523
100 46.65 Err:523
-100 - 42.41 Err:523
600 231.33 -4.87%
- 300.00 - 519.79

NPV is negative & both IRR calculated < 10%

Since the net cash flow change sign 2 times, there are 2 IRR values.

ven
ble?

ders of company.