A.

1,000,000 investment with 50,000 interest

Year 1 Year 2 Year 3
Cash Lay Out 1,000,000 0 0
Return in USD 50,000 50,000 50,000
ROI 0.05

1. Which one generates more investment? :Investment B

2. Which one earns a higher return on investment? :Investment B
3. Which is the best investment option? :Investment B

Investment A (1,000,000 initial outlay and 50,000 interest) using 21% discount rate
Period Cash Outflow Cash Inflow Net Cash Flow Present Value @ 21%
0 (1,000,000.00) 0 (1,000,000.00) 1.00000000000
1 50,000.00 50,000.00 0.82644628099
2 50,000.00 50,000.00 0.68301345536
3 50,000.00 50,000.00 0.56447393004
4 50,000.00 50,000.00 0.46650738019
5 50,000.00 50,000.00 0.38554328941
6 50,000.00 50,000.00 0.31863081769

VS.

Investment B (200,000 initial outlay and 15,000 interest) using 21% discount rate
Period Cash Outflow Cash Inflow Net Cash Flow Present Value @ 21%
0 (200,000.00) 0 (200,000.00) 1.00000000000
1 15,000.00 15,000.00 0.82644628099
2 15,000.00 15,000.00 0.68301345536
3 15,000.00 15,000.00 0.56447393004
4 15,000.00 15,000.00 0.46650738019
5 15,000.00 15,000.00 0.38554328941
6 15,000.00 15,000.00 0.31863081769

Investment B is better than Investment A

 B. 200,000 investment with 15,000 interest
Year 4 Year 1 Year 2 Year 3
0 Cash Lay Out 200,000 0 0
50,000 Return in USD 15,000 15,000 15,000
ROI 0.075

CASE 1.
Investment A (1,000,000 initial outlay and 50,000 interest) using 15% discount rate
Net Present Value Period Cash Outflow Cash Inflow Net Cash Flow
(1,000,000.00) 0 (1,000,000.00) 0 (1,000,000.00)
41,322.31 1 50,000.00 50,000.00
34,150.67 2 50,000.00 50,000.00
28,223.70 3 50,000.00 50,000.00
23,325.37 4 50,000.00 50,000.00
19,277.16 5 50,000.00 50,000.00
15,931.54 6 50,000.00 50,000.00
(837,769.24)

VS.

Investment B (200,000 initial outlay and 15,000 interest) using 25% discount rate
Net Present Value Period Cash Outflow Cash Inflow Net Cash Flow
(200,000.00) 0 (200,000.00) 0 (200,000.00)
12,396.69 1 15,000.00 15,000.00
10,245.20 2 15,000.00 15,000.00
8,467.11 3 15,000.00 15,000.00
6,997.61 4 15,000.00 15,000.00
5,783.15 5 15,000.00 15,000.00
4,779.46 6 15,000.00 15,000.00
(151,330.77)

2nd Scenario- Investment B is better than Investment A

 Year 4
0
15,000

CASE 2.
0 interest) using 15% discount rate Investment A with initial outlay of 2,000,000 uisng 15% di
Present Value @ 15% Net Present Value Period Cash Outflow Cash Inflow
1.00000000000 (1,000,000.00) 0 (2,000,000.00) 0
0.86956521739 43,478.26 1 50,000.00
0.75614366729 37,807.18 2 50,000.00
0.65751623242 32,875.81 3 50,000.00
0.57175324558 28,587.66 4 50,000.00
0.49717673528 24,858.84 5 50,000.00
0.43232759589 21,616.38 6 50,000.00
(810,775.87)

VS. VS.

interest) using 25% discount rate Investment B with initial outlay of 850,000 uisng 25% disc
Present Value @ 25% Net Present Value Period Cash Outflow Cash Inflow
1.00000000000 (200,000.00) 0 (850,000.00) 0
0.80000000000 12,000.00 1 15,000.00
0.64000000000 9,600.00 2 15,000.00
0.51200000000 7,680.00 3 15,000.00
0.40960000000 6,144.00 4 15,000.00
0.32768000000 4,915.20 5 15,000.00
0.26214400000 3,932.16 6 15,000.00
(155,728.64)

nvestment A 3rd Scenario- Investment B is better than Investmen

 CASE 3.
y of 2,000,000 uisng 15% discount rate Investment A with initial outlay of 1,000
Net Cash Flow Present Value @ 15% Net Present Value Period Cash Outflow
(2,000,000.00) 1.00000000000 (2,000,000.00) 0 (1,000,000.00)
50,000.00 0.86956521739 43,478.26 1
50,000.00 0.75614366729 37,807.18 2
50,000.00 0.65751623242 32,875.81 3
50,000.00 0.57175324558 28,587.66 4
50,000.00 0.49717673528 24,858.84 5
50,000.00 0.43232759589 21,616.38 6
(1,810,775.87)

VS.

y of 850,000 uisng 25% discount rate Investment B with initial outlay of 200,00
Net Cash Flow Present Value @ 25% Net Present Value Period Cash Outflow
(850,000.00) 1.00000000000 (850,000.00) 0 (200,000.00)
15,000.00 0.80000000000 12,000.00 1
15,000.00 0.64000000000 9,600.00 2
15,000.00 0.51200000000 7,680.00 3
15,000.00 0.40960000000 6,144.00 4
15,000.00 0.32768000000 4,915.20 5
15,000.00 0.26214400000 3,932.16 6
(805,728.64)

is better than Investment A 4th Scenario- Investment B is better

th initial outlay of 1,000,000 uisng 21% discount rate with 500,000 cash inflow subject to 2% tax
Cash Inflow Net Cash Flow Present Value @ 21% Net Present Value
0 (1,000,000.00) 1.00000000000 (1,000,000.00)
490,000.00 490,000.00 0.82644628099 404,958.68
490,000.00 490,000.00 0.68301345536 334,676.59
490,000.00 490,000.00 0.56447393004 276,592.23
490,000.00 490,000.00 0.46650738019 228,588.62
490,000.00 490,000.00 0.38554328941 188,916.21
490,000.00 490,000.00 0.31863081769 156,129.10
589,861.43

VS.

th initial outlay of 200,000 uisng 21% discount rate with 500,000 cash inflow subject to 2% tax
Cash Inflow Net Cash Flow Present Value @ 21% Net Present Value
0 (200,000.00) 1.00000000000 (200,000.00)
490,000.00 490,000.00 0.82644628099 404,958.68
490,000.00 490,000.00 0.68301345536 334,676.59
490,000.00 490,000.00 0.56447393004 276,592.23
490,000.00 490,000.00 0.46650738019 228,588.62
490,000.00 490,000.00 0.38554328941 188,916.21
490,000.00 490,000.00 0.31863081769 156,129.10
1,389,861.43

nvestment B is better than Investment A