Risk measure %

Division Percent of rocket widgets Standard deviation Beta

A 10 12 1.1
B 20 36 1.2
C 30 14 0.8
B 40 15 0.9

Average annual market return (Rm) 12%

Average annual risk-free rate (Rrf) 8%
 Coefficient of variation(CV) Required rate of return(RRR)
Average annual rate of return%
10% 12.4
20% 12.8
8% 11.2
15% 11.6
Equipment A Year Initial inv Cash inflo Discount raPresent vaIRR
0 -50000 10% -50000
1 -20000 -18181.8
2 -20000 -16528.9
3 -20000 -15026.3
4 -20000 -13660.3
5 -20000 -12418.4
6 -20000 -11289.5
7 -20000 -10263.2
8 -20000 -9330.15
9 -20000 -8481.95
10 -20000 -7710.87
PV of cash flows -122891
NPV -172891

Equipment B Year Initial inv Cash inflo Discount raPresent value formula
0 -50000 8% -50000
1 -20000 -18518.5
2 -20000 -17146.8
3 -20000 -15876.6
4 -20000 -14700.6
5 -20000 -13611.7
6 -20000 -12603.4
7 -20000 -11669.8
8 -20000 -10805.4
9 -20000 -10005
10 -20000 -9263.87
PV of cash flows -134202
NPV -184202
Equipment B Year Initial inv Cash inflo Discount raPresent value formula
0 -85000 10% -85000
1 -15000 -13636.4
2 -15000 -12396.7
3 -15000 -11269.7
4 -15000 -10245.2
5 -15000 -9313.82
6 -15000 -8467.11
7 -15000 -7697.37
8 -15000 -6997.61
9 -15000 -6361.46
10 -15000 -5783.15
PV of cash flows -92168.5
NPV -177169

Equipment B Year Initial inv Cash inflo Discount raPresent value formula
0 -85000 8% -85000
1 -15000 -13888.9
2 -15000 -12860.1
3 -15000 -11907.5
4 -15000 -11025.4
5 -15000 -10208.7
6 -15000 -9452.54
7 -15000 -8752.36
8 -15000 -8104.03
9 -15000 -7503.73
10 -15000 -6947.9
PV of cash flows -100651
NPV -185651
Equipment A Cash inflo IRR Equipment B Cash inflow
-50000 38% -85000 12%
20000 15000
20000 15000
20000 15000
20000 15000
20000 15000
20000 15000
20000 15000
20000 15000
20000 15000
20000 15000
Payback period of equipment Payback period of equipment B
2.5 5.7
 Year Initial inv CashinflowCash outfl Discount r NPV Net cash f Payback period
0 -250000 5% -250000 -250000 11.1
1 25000 -2500 23809.52 22500
2 25000 -2500 22675.74 22500
3 25000 -2500 21595.94 22500
4 25000 -2500 20567.56 22500
5 25000 -2500 19588.15 22500
6 25000 -2500 18655.38 22500
7 25000 -2500 17767.03 22500
8 25000 -2500 16920.98 22500
9 25000 -2500 16115.22 22500
10 25000 -2500 15347.83 22500
11 25000 -2500 14616.98 22500
12 25000 -2500 13920.94 22500
13 25000 -2500 13258.03 22500
14 25000 -2500 12626.7 22500
15 25000 -2500 12025.43 22500
PV of cash flows 259491.5
NPV 9491.451
IRR Profitability index
4% 1.04