PROJECT EVALUATION TECHNIQUES (PETs)

GIVEN:
Cost of Investment Php 3,000,000.00 ARR 12%
IRR 16%

Annual Cash Inflow, net of tax

Year Cash Inflow
1 Php 700,000.00
2 Php 750,000.00
3 Php 800,000.00
4 Php 1,100,000.00
5 Php 1,500,000.00

Requirements:
1 Payback Period
2 Accountin Rate of Return
3 Net Present Value
4 Profitability Index (PI)
5 Net Present Value Index (NPVI)
6 Interal Rate of Return
7 Payback Period- Discounted
 PAYBACK PERIOD

Cash to Date = Cost of Investment

The shorter the better!
Year Cash Inflow, net Cash to Date Payback Period
1 Php 700,000.00 Php 700,000.00 1
2 Php 750,000.00 Php 1,450,000.00 1
3 Php 800,000.00 Php 2,250,000.00 1
4 Php 1,100,000.00 Php 3,350,000.00 0.68 (750,000/1,100,000)
5 Php 1,500,000.00 Php 4,850,000.00 -
3.68 years or 3 years and 8 mos and 5 day

ACCOUNTING RATE OF RETURN (ARR)

Profit/Original Investment

Cost of Investment Php 3,000,000.00

Useful Life 5 years Simple ARR (original) =
Depreciation per year Php 600,000.00
=

Net Operating
Year Cash Inflow, net tax Annual Depreciation
Income
1 Php 700,000.00 Php 600,000.00 Php 100,000.00
2 Php 750,000.00 Php 600,000.00 Php 150,000.00
3 Php 800,000.00 Php 600,000.00 Php 200,000.00
 4 Php 1,100,000.00 Php 600,000.00 Php 500,000.00
5 Php 1,500,000.00 Php 600,000.00 Php 900,000.00
Total Income Php 1,850,000.00

Average Income= Php 370,000.00 (1,850,000/5)

 NET PRESENT VALUE (NPV)
Positive NPV Accept!

Year Cash Inflow, net PVF @ 12% Present Value of Cash Inflow

1 Php 700,000.00 0.8928571429 Php 625,000.00

2 Php 750,000.00 0.7971938776 Php 597,895.41
3 Php 800,000.00 0.7117802478 Php 569,424.20
4 Php 1,100,000.00 0.6355180784 Php 699,069.89
5 Php 1,500,000.00 0.5674268557 Php 851,140.28
Total PVCI Php 3,342,529.78
Less: Cost of Investment Php 3,000,000.00
Net Present Value Php 342,529.78

PROFITABILITY INDEX AND NPV INDEX

Profitability Index = PVCI/COI PI>1 For ranking purposes of multiple projects.
NPV Index= NPV/COI NPV Index >0

Present Value of Cash

Year Year Cash Inflow, net PVF @ 12%
Inflow
1 1 Php 700,000.00 0.8928571429 Php 625,000.00
2 2 Php 750,000.00 0.7971938776 Php 597,895.41
3 3 Php 800,000.00 0.7117802478 Php 569,424.20
4 4 Php 1,100,000.00 0.6355180784 Php 699,069.89
5 5 Php 1,500,000.00 0.5674268557 Php 851,140.28
Total PVCI Php 3,342,529.78
 Less: Cost of Investment Php 3,000,000.00
Net Present Value Php 342,529.78

Profitability Index= 1.1141765921 (3,342.529.78/3,000,000)

NPV Index= 0.1141765921 (342,529.78/3,000,000)
 INTERNAL RATE OF RETURN
PVCI=COI
NPV=0 Cost of Investment Php (3,000,000.00)
PI=1 Year 1 Php 700,000.00
Year 2 Php 750,000.00
Year 3 Php 800,000.00
Year 4 Php 1,100,000.00
Year 5 Php 1,500,000.00
IRR= 16%

Checking:
Year Cash Inflow, net PVF @ 16% Present Value of Cash Inflow

1 Php 700,000.00 0.8620689655 Php 603,448.28

2 Php 750,000.00 0.7431629013 Php 557,372.18
3 Php 800,000.00 0.6406576735 Php 512,526.14
4 Php 1,100,000.00 0.5522910979 Php 607,520.21
5 Php 1,500,000.00 0.4761130154 Php 714,169.52
Total PVCI Php 2,995,036.32
Less: Cost of Investment Php 3,000,000.00
Net Present Value Php (4,963.68)

PAYBACK PERIOD-DISCOUNTED
Cash to Date = Cost of Investment
The shorter the better!
Payback
Year Cash Inflow, net PVF @12% Present Value Cash to Date
Period
1 Php 700,000.00 0.8928571429 Php 625,000.00 Php 625,000.00 1
2 Php 750,000.00 0.7971938776 Php 597,895.41 Php 1,222,895.41 1
3 Php 800,000.00 0.7117802478 Php 569,424.20 Php 1,792,319.61 1
4 Php 1,100,000.00 0.6355180784 Php 699,069.89 Php 2,491,389.49 1
5 Php 1,500,000.00 0.5674268557 Php 851,140.28 Php 3,342,529.78 0.6
4.6
(PETs)
 (750,000/1,100,000)

years or 3 years and 8 mos and 5 days.

N (ARR)

Php 370,000.00
Php 3,000,000.00
12%
V)

V INDEX
RN

TED
(3,000,000-2,491,389.49)
851,140.28

years or 3 years and 7 mos. And 6 days