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2. Capex Summary (Option 1 of 2)2
2
1.5
0.2 0.3
3
2
0.3
0.5
0
0.5
1
1.5
2
2.5
3
3.5
4
Machine 1 Machine 2 Building 1 Building 2
InMillions
FY18 FY19
67% 32% 78%
21%
% Increase / Decrease over Previous year
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3. Capex Summary (Option 2 of 2)3
0.5
0.3
2
3
0.3 0.2
1.5
2
0
0.5
1
1.5
2
2.5
3
3.5
Machine 1 Machine 2 Building 1 Building 2
InMillions
FY18 FY19
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67% 32% 78%
21%
% Increase / Decrease over Previous year
4. Capital Expenditure Details – FY 184
Repairing an existing asset so
as to improve its useful life
$500,000
Restoring property or adapting
it to a new or different use
$300,000
Starting or acquiring
a new business
$400,000
Upgrading an existing asset if
it results in a superior fixture
$800,000
Acquiring fixed, & in some
cases, intangible asset
$300,000
Preparing an asset to
be used in business
$600,000
5. Discounted Payback Period
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Internal Rate of Return
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Net Present Value Method
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5
Capital Expenditure Valuation Methods
6. Discounted Payback Period6
Advantages
It is easy to understand & calculate
It takes into account the time value of money
This method helps in selection of a profitable project
from among mutually exclusive projects very easily
Disadvantages
Selection of appropriate rate for discounting
the cash flows is another problem
It does not take into account the cash inflows
that occur after the payback period
It is the time required to recover the initial cost of
investment through discounted inflows of a project
Instead of normal cash inflows, DCF is
employed to calculate the payback period
7. Discounted Payback Period – Valuation Summary7
Year Cash Inflows PV Factor at 10%
1 12,000 0.909
2 14,000 0.826
3 16,000 0.751
4 15,000 0.683
5 14,000 0.621
Year
Cash Inflows
(Rs.) (A)
PV Factor at
10% (B)
Present Value
(A*B)
Cumulative PV
of Cash Inflows
1 12,000 0.909 10,908 10,908
2 14,000 0.826 11,564 22,472
3 16,000 0.751 12,016 34,488
4 15,000 0.683 10,245 44,733
5 14,000 0.621 8,694 53,427
= 3 years + ( 43000 – 34,488) /10245
= 3 years + 0.83 years
= 3.83 yearsDiscounted
Payback Period
Cost of the Project
Rs 43,000
Solution: Computation of Discounted Payback Period
8. Net Present Value Method8
Under this method a stipulated rate of interest, usually the
cost of capital, is used to discount the cash inflows
Sum of PV of Cash Inflows - Sum of PV of Cash Outflows
Calculation :-
NPV < 0
NPV > 0
NPV = 0
Reject the Project
Accept the Project
Be Indifferent
Rules to Accept or Reject a Project
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9. NPV
Advantages &
Disadvantages NPV
It recognizes the time value of money
It takes into account the entire
series of cash flows for analysis
Advantages
Selection of project under mutually
exclusive projects is easy
Difficult to understand & calculate
Selection of the discount rate for
discounting of cash inflows is a problem
Disadvantages
9
10. Net Present Value – Valuation Summary10
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Years
Cash Inflows (Rs)
(A)
PV Factor at 10%
(B)
Present Value
(A*B)
1 1,10,000 0.909 99,990
2 1,60,000 0.826 1,32,160
3 30,000 0.751 22,530
2,54,680
NPV
= 2,54,680 – 2,00,000
= Rs 54,680
Computation of Net Present Value
11. Internal Rate of Return11
It is the rate which makes the net present value of a
project equal to zero
The rate of discount which equates the present value of
expected cash inflows from a project with present value of
cash outflow
Rules
IRR < Cost of Capital
IRR > Cost of Capital
IRR = Cost of Capital
Reject the Project
Accept the Project
Be Indifferent
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12. IRR Advantages
& Disadvantages
Advantages
It recognizes the time
value of money
It considers cash inflows & cash outflows
over the entire life of the project
In case of mutually exclusive projects, it
helps select a project very easily
Disadvantages
It involves lengthy & tedious calculations
Sometimes a project may have
multiple IRR in which confuses users
Projects selected on the basis of higher
IRR may not be profitable in all cases
12
13. Internal Rate of Return – Valuation Summary13
3.08
40000
13000
==
The nearest value corresponding
to 3.08 in the present value of
annuity table for 4 years
3.1024
IRR is 11% which Corresponds to 3.1024
Payback
Period
=
Annual Cash
Inflow
Initial Investment Alternatively, Simple
Interpolation Method
11.34 %IRR
(IRR – 11) / 12-11 (3.08 – 3.1024) / 3.0373 - 3.1024=
(IRR – 11) / 1 ( -0.0224 ) / (- 0.0651)=
IRR – 11 0.34=
Rate Discount Factor
11% 3.1024
IRR 3.08
12% 3.0373
14. Valuation Methods Comparison14
Valuation Method Results Comments
Discounted
Payback Period
3.83 Years
▪ Your Text Here
▪ Your Text Here
Net
Present Value
54,680
▪ Your Text Here
▪ Your Text Here
Internal Rate
of Return
11.34%
▪ Your Text Here
▪ Your Text Here
Discounted Payback Period
The most suitable choice for valuation
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17. Clustered Bar17
15
25
50
45
52
47
40
25
0 10 20 30 40 50 60
Q1
Q2
Q3
Q4
Unit Count
Product01 Product02
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19. 19
Name Here
Designation
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Our Team
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20
21. 21
Circular
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22. 22
Address
# street number, city, state
Contact Number
0123456789
Email Address
emailaddress@123gmail.com
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