00:01
Firstly, we need to evaluate the regular payback period.
00:14
So, it is evaluated as initial investment divided by annual cash flow.
00:21
So, for project a, it's 25 divided by 5.
00:27
So, we get 5 years.
00:33
And for project b, it's 25 divided by 20.
00:42
We get 1 .5 years.
00:46
Next in discounted payback period.
01:00
It is evaluated as number of years before full recovery, wherein we add remaining investment divided by discounted cash flow in the next year.
01:09
So, for project a, 2 wherein we add 15 divided by 1 to which we add 0 .12 whole square to the power 3.
01:21
So, the value then is approximately 2 .69 years.
01:30
And project b, it is 2 wherein we add 10 divided by 1 to which we add 0 .12 whole to the power 2.
01:41
So, the value then is approximately 2 .50 years.
01:51
Next, npv at 10%.
01:56
So, npv is evaluated as total value of cash flow divided by 1 to which we add discount rate to the whole to the power year wherein we subtract initial investment.
02:26
So, for project a, it's 5 divided by 1 wherein we add 0 .10 whole to the power 1 to which we add 10 divided by 1 to which we add 0 .10 whole to the power 2 to which we add 15 divided by 1 wherein we add 0 .10 whole to the power 3 to which we add 20 divided by 1 wherein we add 0 .10 whole to the power 4 to which we add 25 divided by 1.
03:03
Wherein we add 0 .10 whole to the power 5 to which we subtract 25.
03:09
So, then equating it we get the value to be approximately 3 .18 wherein we add 7 .13 to which we add 11 .48 to which we add 15 .78 to which we add 19 .13 wherein we subtract 25.
03:28
So, the value then is approximately 6 .70 million dollars.
03:39
Next in project b, here we have 20 divided by 1 wherein we add 0 .10 whole to the power 1 to which we add 10 divided by 1 to which we add 0 .10 whole to the power 2 to which we add 8 divided by 1 wherein we add 0 .10 whole to the power 3 to which we add 6 divided by 1 wherein we add 0 .10 whole to the power 4 to which we add 4 divided by 1.
04:11
Wherein we add 0 .10 whole to the power 5 to which we subtract 25...