Investment Detective

4 out of 8

Investment Rules

1 2 3 4 5 6 7 8Total Life of Investment 8 3 15 15 15 1 5 7Payback (Years) 7 2 15 6 8 1 2 7Average ROI 20.7% 36.1% 33.3% 11.9% 14.0% 110.0% 25.6% 29.6%Net present Value at:

10% $73 ($85) $394 $228 $130 $0 $165 $18311% (11) (107) 90 127 13 (18) 132 5112% (90) (129) (173) 30 (93) (36) 99 (72)13% (164) (150) (401) (60) (191) (53) 68 (188)14% (234) (170) (599) (146) (280) (70) 37 (296)15% (300) (190) (771) (227) (363) (87) 8 (397)16% (362) (210) (921) (304) (439) (103) (21) (493)

Internal Rate of Return 10.9% 6.3% 11.3% 12.3% 11.1% 10.0% 15.3% 11.4%PV Index 1.037 0.957 1.197 1.114 1.065 1.000 1.083 1.563Equivalent Annuity $13.7 ($34.4) $51.8 $30.0 $17.1 $0.0 $43.5 $37.6Equiv. Annuity (to infinity) $137.0 ($343.6) $517.9 $300.1 $170.5 $0.0 $435.4 $375.9

Rankings

Relating Reality

Why not Same?

NPV vs. IRR

Project 7 NPVs

Project 8 NPVs

0% $560 $2,150

2% $471 $1,637

4% $387 $1,194

6% $309 $809

8% $235 $475

10% $165 $183

12% $99 ($72)

14% $37 ($296)

16% ($21) ($493)

18% ($77) ($666)

20% ($130) ($819)

22% ($180) ($954)

($1,500)

($1,000)

($500)

$0

$500

$1,000

$1,500

$2,000

$2,500

0% 2% 4% 6% 8% 10% 12% 14% 16% 18% 20% 22%

Net

Pre

sen

t V

alu

e (t

hou

san

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Project 7 NPVs Project 8 NPVs

Year 7 8($2,000) ($2,000)

1 $1,200 ($350)2 900 (60)3 300 604 90 3505 70 7006 1,2007 2,25089

101112131415

Sum of Cash Flow Benefits $2,560 $4,150

Are we through?

IRR of project 4 is…, 12.3% ~399900%

Are we through?

Year Cash Flow0 15,0001 -6,1382 -6,1383 -16,1384 -10,0005 -10,0006 35,061

NPV (1%) 1,147NPV (4.06%) 0NPV (15%) -1121NPV (27.24%) 0NPV(30%) 370

MIRR

Finance Rate 10%Reinvestment rate 15%

Year 1 2 3 4 5 6 7 8Initial

Investment ($2,000) ($2,000) ($2,000) ($2,000) ($2,000) ($2,000) ($2,000) ($2,000)1 $330 $1,666 $0 $160 280 $2,200 $1,200 ($350)2 330 334 0 200 280 900 (60)3 330 165 0 350 280 300 604 330 0 395 280 90 3505 330 0 432 280 70 7006 330 0 440 280 1,2007 330 0 442 280 2,2508 1,000 0 444 2809 0 446 280

10 0 448 28011 0 450 28012 0 451 28013 0 451 28014 0 452 28015 10,000 (2,000) 280

MIRR 13% 11% 11% 13% 13% 10% 15% 12%

Cosmetic Restatement of NPV Analysis

NPV vs. MIRR

NPV vs. MIRR

Is MIRR Right?

Is MIRR Right?

Is MIRR Right?

Beware

To the child with a new hammer, every problem looks like a nail