Pay Back Calculation

Project A
Year Expected Cash Cummulative
flows ($) Inflows ($)
0 -1000000
1 40000 40000
2 200000 240000
3 500000 740000 0.26
4 1000000 1740000
5 1300000 3040000

Pay back 3.26 Years

Discounted Pay Back Calculation

Project A

Year Cummulative
Expected Cash Discounted Discounted Flows Discounted
flows ($) Rate 20% ($) Flows ($)
0 -1000000
1 40000 0.83 33,333.33 33,333.33
2 200000 0.69 138,888.89 172,222.22
3 500000 0.58 289,351.85 461,574.07
4 1000000 0.48 482,253.09 943,827.16
5 1300000 0.40 522,440.84 1,466,268.00

Discounted Pay
back 4.11 Years

Net Present Value Calculation

Project A
Year Expected Cash Discounted Discounted Flows
flows ($) Rate 20% ($)
0 -1000000
1 40000 0.83 33,333.33
2 200000 0.69 138,888.89
3 500000 0.58 289,351.85
4 1000000 0.48 482,253.09
5 1300000 0.40 522,440.84
1,466,268.00
NPV ($) 466,268.00

IRR 32.56%

Project Selection Criteria:

 Criteria Project A Project B
Pay Back Years 3.26 1.25
Discounted Pay 4.11 1.66
Back Years
Net Present Value 466268 704295.27
NPV ($)
Internal Rate of 32.56 60.52
Return IRR %

Conclusion:
On above criteria Project B will recommended to start a Business as it has lesser pay back period, Higher NPV and
 Project B
Year Expected Cash Cummulative
flows ($) Inflows ($)
0 -900000
1 750000 750000
2 600000 1350000 0.25
3 500000 1850000
4 400000 2250000
5 200000 2450000

Payback 1.25 Years

Project B

Year Cummulative
Expected Cash Discounted Rate Discounted Flows Discounted Flows
flows ($) 20% ($) ($)
0 -900000
1 750000 0.83 625,000.00 625,000.00
2 600000 0.69 416,666.67 1,041,666.67
3 500000 0.58 289,351.85 1,331,018.52
4 400000 0.48 192,901.23 1,523,919.75
0.11 5 200000 0.40 80,375.51 1,604,295.27

Discounted Pay
back 1.66 Years

Project B
Year Expected Cash Discounted Rate Discounted Flows
flows ($) 20% ($)
0 -900000
1 750000 0.83 625,000.00
2 600000 0.69 416,666.67
3 500000 0.58 289,351.85
4 400000 0.48 192,901.23
5 200000 0.40 80,375.51
1,604,295.27
NPV ($) 704,295.27

IRR 60.52%
pay back period, Higher NPV and Higher IRR.
0.66