Capital Budgeting & Project Appraisal for New Housing Development - Balfour Beatty - Case Study Example

Capital Budgeting & Project Appraisal Report for New Housing Development Total Number of Words: 3,049 ExecutiveSummary Balfour Beatty has the credibility and expertise to deliver the proposed housing project. However, the financial ratios presented in Appendix I shows that this particular company is having some problems with regards to its profitability ratios (i.e. operating profit margin, ROCE, and ROSF), efficiency ratios (i.e. settlement days for payments, and inventory turnover period), liquidity ratios (i.e. quick ratio), and investment ratios (i.e. dividend payout, dividend cover, EPS, and P/E ratio). Since Balfour Beatty has a problem with its financial stability, the top management of MF4BE should consider examining the qualification of other construction company for this particular housing project. The second part of the appraisal report has completed a set of financial computations which can be used in the actual decision-making process (i.e. breakeven analysis, the estimated profit, and capital budgeting analysis based on the computed payback period, accounting rate of return, net present value, and the internal rate of return). Based on the computed break-even analysis and capital budget analysis, the proposed housing project seems to be very lucrative. Carrying out the housing development project can be tedious and troublesome. Therefore, the best way to protect their own interests from having the need to undergo unnecessary problems with regards to the management of human resources and other financial assets, MF4BE should consider outsourcing the project. By closing the housing development project for a fixed price, MF4BE will be able to demand Balfour Beatty to deliver the project on time without the need to absorb additional costs which may occur as a result of mismanagement. Table of Contents Executive Summary ………………………………………………………………………. 2 Table of Contents …………………………………………………………………………. 3 1. Introduction ……………………………………………………………………….. 4 2. Part 1: Assessment of Suitability of Balfour Beatty PLC ……………….………... 4 2.1 Solutions and Numerical Investigation ………………………………. 4 2.2 Findings, Analysis, and Interpretation of Results ……………………. 5 2.3 Conclusion and Recommendations …………………………………… 8 3. Part 2: Development Decision Making …………………………………………… 9 3.1 Break-Even Analysis and Estimated Profit ……………..……………. 9 3.2 Capital Budgeting Analysis ……………………………………...…… 11 3.2.1 Computation …………………………………………….. 11 3.2.1.1 Payback Period ………………………….. 12 3.2.1.2 Accounting Rate of Return (ARR) ……… 12 3.2.1.3 Net Present Value (NPV) ……………….. 13 3.2.1.4 Internal Rate of Return (IRR) …………… 13 3.2.2 Discussion ………………………………………………. 13 3.3 Conclusion and Recommendations …………………..……………….. 14 References …………………………………………………………………………………. 15 Appendices …………………………………………………………………………………. 19 Appendix I – Balfour Beatty’s Group Financial Ratios ……………………………...……. 19 Appendix II – Computation of Break-Even Analysis ..………………………..…………... 20 Appendix III – Computation of Payback Period …………………………………..…….… 20 Appendix IV – Computation of Accounting Rate of Return ……………………...……..… 21 Appendix V – Computation of Net Present Value ……………………………………….... 21 Appendix VI – Computation of Internal Rate of Return …………………………..………. 22 Chapter 1 – Introduction The proposed housing development project is located at the Land East of Coldhabhour (LECHL) closed to the University of the West of England in Bristol. In relation to the proposed housing project, the first part of this particular appraisal report will seek to observe and examine the financial standing and capacity of Balfour Beatty1 to carry out and deliver the housing development requirements of MF4BE. Based on the most recent annual report of Balfour Beatty, a financial report will be prepared to check on the financial “health” of this particular construction company. The second part of the appraisal report will focus on financial computations which can be used in the actual decision-making process (i.e. breakeven analysis, the estimated profit, and capital budgeting analysis based on the computed payback period, accounting rate of return, net present value, and the internal rate of return). Based on the actual computation, MF4FE will be given some advice regarding the viability of the project followed by making some realistic assumptions with regards to the timing of construction and the selling of units. Likewise, MF4BE will be informed about the pros and cons of outsourcing the development of the said housing project as compared to doing the housing project using their available in-house resources. Chapter 2 – Part 1: Assessment of Suitability of Balfour Beatty PLC 2.1 Solutions and Numerical Investigation The first step in assessing Balfour Beatty’s current financial standing is to search and locate the company’s 2013 and 2014 annual reports online. Eventually, it is necessary to compare Balfour Beatty’s income statement based on the year ended 31st of December 2013 and 2014 (i.e. revenue, profit/loss from operations, profit/loss before taxation, profit/loss for the year attributed to equity holders, basic earnings/loss per ordinary share, operating cash flows, working capital, borrowings such as loans, etc.) (Balfour Beatty, 2014, pp. 90–94). Sales revenue, profit/loss from operations, and profit/loss before taxation are basically some figures that tell us whether or not Balfour Beatty is making any profit from its day-to-day business transactions (Khan and Jain, 2005, p. 3-41). The term “equity holders” are generally referring to the “ordinary shareholders” (Khan and Jain, 2005, p. 3.48). As such, the value of earnings per share (EPS) tells us whether or not the company is capable of paying back its equity holders (Holgate and Buckley, 2008, p. 96). For example, to compute for EPS, it is necessary to know the profit/loss for the year attributed to equity holders since this figure will be divided by the average number of outstanding ordinary shares (Greg and Jermakowicz, 2015, p. 195). To ensure that Balfour Beatty will be able to comply with the future demands of MF4BE, the said company should have a positive operating cash flows and working capitals. Balfour Beatty’s ability to payback its loan is another way to check the financial capacity of the pre-screened construction company. The common types of ratios which can be used in the actual evaluation of Balfour Beatty’s overall financial performance include not only the profitability ratios but also the efficiency, liquidity, gearing, and investment ratios (Khan and Jain, 2010, p. 6-3). Presented in Appendix I on page 19 represent the computation of all of these ratios. 2.2 Findings, Analysis, and Interpretation of Results One of the main reasons why there is a need to solve for the profitability ratio(s) is to determine whether or not Balfour Beatty literally has the ability to meet their daily financial obligations (Peterson and Fabozzi, 1999, p. 87). The company’s profitability ratio such as the ‘gross profit margin’ is close to 0% whereas the ‘operating profit margin’, ‘ROCE’, and ‘ROSF’ are all negative values. It means that this particular construction company may not be necessarily good when it comes to their financial management or the balancing between their income and expenses. Among the few probable reasons why its profitability ratios are not good include the fact that this company has failed to acquire cheaper sources of raw materials which has made the actual cost of goods sold a little higher than what is necessary. Since this particular company may have better reasons why their gross profit margin remains negative, the next best thing is to look at its efficiency, liquidity, gearing, and investment ratios. Efficiency ratios can show us how the company is managing its investment and operating expenses (Berges, 2004, p. 93). The inventory turnover period is not at all bad even though the number of days required for its inventory to move had increased from 6.99 days in 2013 up to 8.70 days in 2014. Sales revenue to capital employed increased from 2.52 times in 2013 up to 2.61 times in 2014 which quite good because these figures somehow suggest that the company was able to improve the use of its assets more efficiently. Likewise, increase in its sales per employee from £187,200 in 2013 up to £201,778 in 2014 strongly suggests that the company managed to increase its employee productivity. The problem with the efficiency ratio can be noted in the length of time in which the company is able to settle or payback their debts. Looking at the settlement days for payments, the number of days had increased from 922.48 in 2013 up to 931.76 in 2014. The fact that it takes a longer time for the company to payback their creditors could mean that this particular company is having problem with their cash flow. Liquidity ratios are normally being computed in order to allow the top management of MF4BE to easily evaluate the financial strength and financial condition of Balfour Beatty. This particular evaluation process is necessary to avoid taking too much risk in case MF4BE decides to close a business deal with Balfour Beatty. Although the company’s current ratio increased from 1.01 times in 2013 up to 1.31 in 2014, the figure remains low. Even though Balfour Beatty is able to pay its current liabilities using its current assets, the company many not be liquid enough to handle any misfortune it will be facing once the company agreed to do the project for MF4BE. Quick ratio measures the company’s ability to payback short-term debts. The quick ratio of 0.56 in 2014 somehow confirms that this company is not liquid enough in case of untoward events. In support of the liquidity ratios, the net working capital is normally computed to measure the actual liquidity position of Balfour Beatty (Khan and Jain, 2010, p. 6-3). It is good that the company’s net working capital increased from £35 million in 2013 up to £1,230 million in 2014. As a general rule, a company should be able to have more than enough net working capital so that the organization can support the daily operational needs of the business and at the same time be able to deliver the amount their creditors are claiming. For this reason, a very high net working capital could mean that the company’s total current asset is much greater than their total current liabilities. Gearing ratio examines the ability of the company to payback or manages their long-term debt obligations to their creditors. After dividing the company’s total debts such as the short-term and long-term debt obligations as well as the bank overdrafts by the company’s shareholder’s equity, it was noted that the company’s gearing ratio has gone down from 52.80% to 30.15% in 2013 and 2014 respectively. Basically, a significant decrease in the company’s gearing ratio could mean that the company is now experiencing a better financial stability as compared to 2013. To test the company’s exposure to the changes in interest rates, it is necessary to compute for the interest cover ratio. Presented in Appendix I, the interest cover increased from 0.88% in 2013 up to 6.08% in 2014. Significant increase in the interest cover ratio strongly suggests that the company is now in a better position to payback the interest rates of their short-term and long-term loans. The investment ratio is all about evaluating the company’s investments and its potential to attract new investors. For instance, the dividend payout ratio shows how strong the company policy is when it comes to managing the shareholders’ dividends. The company’s dividend payout was -18.82% in 2013 as compared to -4.42% in 2014. Likewise, the dividend cover remains negative and again had worsened by decreasing from -0.67 in 2013 down to -3.25 times in 2014. Even though there was a significant increase in the company’s dividend payout, one cannot deny the fact that it is still negative. It means that for some reasons, the company may have used large amount of money on other projects instead of pooling the money into the shareholder’s pockets. This can be supported by the fact that the company’s EPS worsen from -5.1p in 2013 down to -8.6p in 2014. 2.3 Conclusion and Recommendations In terms of expertise, there is no problem with regards to Balfour Beatty’s credibility to deliver the proposed housing project. However, based on the financial ratios computed in section 2.1, this particular company seems to have some problem with regards to its profitability ratios (i.e. operating profit margin, ROCE, and ROSF), efficiency ratios (i.e. settlement days for payments, and inventory turnover period), liquidity ratios (i.e. quick ratio), and investment ratios (i.e. dividend payout, dividend cover, EPS, and P/E ratio). Assuming that MF4BE would award the housing project to Balfour Beatty, only one technical error is needed to make Balfour Beatty suffer the long-term consequences of a serious financial disaster. Since Balfour Beatty has a problem with its financial stability, the top management of MF4BE should consider examining the qualification of other construction company for this particular housing project. Chapter 3 – Part 2: Development Decision Making 3.1 Break-Even Analysis and Estimated Profit Upon closing the business deal with Balfour Beatty, a break-even analysis can provide MF4BE a better picture on what to expect. Therefore, conducting a break-even analysis is important prior to the implementation of a new project. In the process of conducting a break-even analysis, MF4BE would know how much profit the company could make out of implementing the proposed housing project, the actual cost of the project, how many houses and units to sell so that the company could earn back the initial cost of investment, and so on (Tsorakidis et al., 2008, p. 18). A break-even analysis focuses on examining three (3) important factors which include the project cost, the expected sales volume, and profit (Crosson and Needles, 2011, p. 220). The site of the proposed project is close to the University of West of England which is the biggest educational institution in southwest of England (Mastersportal, 2015). Gathered from the official website of Zoopla, the current market value of a single detach house in southwest England is £256,429 (Zoopla, 2015a). Depending on size, number of bedrooms, and house design, the minimum market price of a single detach house in this area is £70/sq. ft. (Zoopla, 2015b). In relation to the proposed housing development project, a building or flat with 50 studio bedrooms will be created and sold for £105,000 each. On top of the proposed building or flat, a maximum of 35 single detach houses will be constructed in this area. The expected selling price of each single detach house is £300,000 each. Assuming that all single detach houses and studio units will be sold, MF4BE could earn a total of £15,750,000 from its maximum expected sales. (See Table I – Computation of Expected Sales below) Table I – Computation of Expected Sales   Studio Unit Single Detach House Total Number of Units 50 35   Selling Price 105,000 300,000   Total Expected Sales 5,250,000 10,500,000 15,750,000 Total Fixed Costs     10,000,000 Assuming that MF4BE would enter into a business contract with Balfour Beatty for a price of £10 million, then, the project’s total fixed cost would clearly be £10 million. Taking all these into consideration, the break-even point could happen within 4.2735 years from the time the project was first implemented. (See Figure I – Break-Even Analysis below; Appendix II – Computation of Break-Even Analysis on page 20) Figure I – Break-Even Analysis 3.2 Capital Budgeting Analysis Capital budgeting analysis can help MF4BE make important “capital investment decisions” (Leitner, 2012, p. 24). In the process of completing the capital budget analysis, the top management of MF4BE would know more about the time period when they can get back their initial cash outlay or investment. Likewise, it is through capital budgeting analysis that the top management of MF4BE carefully plan, analyze, select, and manage the capital investments involved in the proposed housing development project (Baker and Powell, 2005, p. 226). Assuming that investment of 10,000,000 will be made on the 1st of January 2016, the inflow of cash from sales is expected to come in immediately a year after, between 2017 up to 2031. As such, below is the table of expected investment and its respective cash inflows. (See Table II – Investment and Cash Inflows below) Table II – Investment and Cash Inflows Year Investment / Cash Inflows 2016 (10,000,000) 2017 2,340,000 2018 2,340,000 2019 2,340,000 2020 2,340,000 2021 2,340,000 2022 2,340,000 2023 1,710,000 3.2.1 Computation The following sub-sections will present the actual computation of the project’s payback period, accounting rate of return (ARR), net present value (NPV), and internal rate of return (IRR). 3.2.1.1 Payback Period Computing for the payback period is essential because it will allow the top management of MF4BE to know approximately how many years and months will it take for them to earn back the money they have invested in the proposed housing project (Crosson and Needles, 2011, p. 449). Often times, the shorter the payback period, the better it is on the part of MF4BE. To compute for the payback period, it is necessary to compute first the number of years before reaching the full recovery plus the amount computed after dividing the unrecovered cost with the cash flow received during the year wherein the company is expected to experience full recovery (Ehrhardt and Brigham, 2009, p. 337). Therefore, considering all the given assumptions, the payback period of the proposed project is 4.2735 years. (See Table III – Payback Period below; Appendix III – Computation of Payback Period on page 20) Table III – Payback Period Formula Payback Period No. of Years Prior to Full Recovery + (Uncovered Cost / Cash Flow during the Full Recovery Year) 4.2735 years 3.2.1.2 Accounting Rate of Return (ARR) Computed by dividing the average profit or income with the book value of initial investment, the accounting rate of return (ARR) is pertaining to the “average rate of return” (Chandra, 2008, p. 297). Using the formula presented above, the ARR of this project is 0.23 or 23%. (See Table III – Accounting Rate of Return on page 13; Appendix IV – Computation of Accounting Rate of Return on page 21) Table VIII – Accounting Rate of Return Formula Accounting Rate of Return Average Annual Profit / Initial Investment 0.23 or 23% 3.2.1.3 Net Present Value (NPV) The net present value (NPV) is referring to the project’s total present value of cash flows (Chandra, 2008, p. 299). In general, NPV more than the initial cost of investment means that the project is good (Schmidgall, 2004, p. 136). Assuming that the discount rate is 10% each year, NPV is worth £36,812,114. Since NPV is much higher than the initial investment, the proposed housing project is said to be very promising. (See Appendix V – Computation of Net Present Value on page 21) 3.2.1.4 Internal Rate of Return (IRR) Internal rate of return (IRR) is actually pertaining to the rate of return or interest rate that MF4BE would receive from implementing the proposed housing project (Grossman and Livingstone, 2009, p. 181). Using the MS-excel software, the IRR of the proposed housing project is 13.27% which is already considered as good. (See Appendix VI – Computation of Internal Rate of Return on page 22) 3.2.2 Discussion Among these four (4) capital budgeting methods (i.e. payback period, ARR, NPV, and IRR), IRR is the most important for MF4BE because it measures the interest rate that the proposed project would pay them once the whole plan has been successfully implemented. NPV is also important because it measures the present value of money. Although easy to use, ARR may not be the best choice when making sensitive decision making such as a housing development project because this method uses the average net income which often times is not considered as a reliable figure (Crosson and Needles, 2011, p. 451). Aside from not considering the time value of money, ARR does not give importance to the cash flow (Crosson and Needles, 2011, p. 451). Payback period simply measures the time period wherein the company can reach the break-even point. 3.3 Conclusion and Recommendations The computation behind the break-even analysis and the capital budgeting such as payback period, accounting rate of return, net present value, and internal rate of return strongly suggest that the proposed housing project seems to be very lucrative. There are advantages with regards to outsourcing the project. First of all, MF4BE can free themselves from all the technical, safety, and financial problems which may occur throughout the construction period. Having a payback period of 4.2735 years is not at all bad. Therefore, outsourcing the project is highly recommended than doing the project using in-house resources. References Baker, H. and Powell, G. (2005). Understanding Financial Management: A Practical Guide. Oxford: Blackwell Publishing. Balfour Beatty. (2015). What we do. [Online] Available at: http://www.balfourbeatty.com/index.asp?pageid=71 [Accessed 29 June 2015]. Balfour Beatty. (2014). Annual Report and Accounts 2014. [Online] Available at: http://www.balfourbeatty.com/files/reports/2014/ar2014/ar2014.pdf [Accessed 29 June 2015]. Berges, S. (2004). The Complete Guide to Real Estate Finance for Investment Properties. New Jersey: John Wiley & Sons Inc. Chandra, P. (2008). Financial Management. New Delhi: Tata McGraw-Hill. Crosson, S. and Needles, B. (2011). Managerial Accounting 11th Edition. Mason, OH: South-Western Cengage Learning. Ehrhardt, M. and Brigham, E. (2009). Corporate Finance: A Focused Approach. Mason, OH: South-Western Cengage Learning. Garman, E. and Forgue, R. (2012). Personal Finance. 11th Edition. Mason, OH: Ssouth-Western Cengage Learning. Greg, F. and Jermakowicz, E. (2015). International Financial Reporting Standards: A Framework-Based Perspective. Oxon: Routledge. Grossman, T. and Livingstone, J. (2009). The Portable MBA in Finance and Accounting. 4th Edition. New Jersey: John Wiley & Sons Inc. Holgate, P. and Buckley, E. (2008). Accounting Principles for Non-Executive Directors. Cambridge: Cambridge Univesity Press. Khan, M. and Jain, P. (2010). Management Accounting. 5th Edition. New Delhi: Tata McGraw Hill. Khan, M. and Jain, P. (2005). Basic Financial Management. 2nd Edition. New Delhi: Tata McGraw-Hill. Leitner, S. (2012). Information Quality and Management Accounting: A Simulation Analysis of Biases in Costing Systems. London: Springer-Verlag Berlin Heidelberg. Mastersportal. (2015). University of the West of England. [Online] Available at: http://www.mastersportal.eu/universities/150/university-of-the-west-of-england.html [Accessed 29 June 2015]. Peterson, P. and Fabozzi, F. (1999). Analysis of Financial Statements. Pennsylvania: Frank J. Fabozzi Associates. Schmidgall, R. (2004). Superintendents Handbook of Financial Management. New Jersey: John Wiley & Sons Inc. Tsorakidis, N., Papadoulos, S., Zerres, M. and Zerres, C. (2008). Break-Even Analysis. bookboon.com. Zoopla. (2015a). Cuurrent Property Values. [Online] Available at: http://www.zoopla.co.uk/home-values/ [Accessed 29 June 2015]. Zoopla. (2015b). New home developments for sale in South West England. [Online] Available at: http://www.zoopla.co.uk/new-homes/property/south-west-england/?include_retirement_homes=true&include_shared_ownership=true&q=south%20west%20england&results_sort=newest_listings&search_source=new-homes [Accessed 29 June 2015]. Appendix I – Balfour Beatty’s Group Financial Ratios 2014 (£ millions) 2013 (£ millions) 2014 (£ millions) 2013 (£ millions) Sales / Revenue 7,264 7,488 Current Trade & Other Receivables 966 1,190 Cost of Goods Sold/Cost of Sale 7,133 7,052 Total Current Assets 5,244 5,712 Gross Profit 131 435 Inventories 170 135 Operating Profit (334) (104) Current Assets 2,499 2,801 Interest Expense (i.e. interest paid to infrastructure concessions and others) 50 56 Current Liabilities 2,466 2,737 Earnings for Shareholders 287 212 Net Current Liabilities 4,014 5,677 Price of Dividends per Share 5.6p 14.1p Equity 1,230 1,035 EPS of ordinary shares (8.6)p (5.1)p Due from Construction Contract Customers 562 631 Annual Dividend 38 96 Trade and Other Payables 1,959 2,046 Net Profit After Tax (301) (53) Due to Construction Contract Customers 350 360 Credit Purchases (i.e. current & non-current borrowings) 957 1,024 Ave. Trade Payables (i.e. current & non-current trade & other payables + due to construction contract customers) 2,443 2,588 No. of Employees 36,000 40,000 Share Capital 345 344 Accounts Receivables (i.e. trade & other receivables + due from construction contract customers) 1,528 1,821 Reserves 23 24 Long-term Debts 304 49 Non-Current Liabilities 4,014 4,677 Short-term Debts (i.e. current liabilities) 1,501 1,771 Bank Overdrafts 4 78 Shareholder’s Equity 60 35 2014 2013 Figures Answers Figures Answers Profitability Gross Profit Margin (7,264-7,133) / 7,264 0.02% (7,488-7,053) / 7,488 0.06% Decrease Operating Profit Margin -304/7,264 -0.04% -49/7,488 -0.01% Decrease ROCE (334) / (5,244-2,466) -0.12% (104) / (5,712-2,737) -0.03% Decrease ROSF [(301)/1,230]*100 -24.47% [(53)/1,035]*100 -5.12% Decrease Efficiency Inventory Turnover Period (170/7133)*365 8.70 days (135/7052)*365 6.99 days Increase Settlement Days for Receivables [966/(966+562)]*365 230.75 days [1190/(1190+631)]*365 238.52 days Decrease Settlement Days for Payments (2443/957)*365 931.76 days (2588/1024)*365 922.48 days Increase Sales Revenue to Capital Employed (7264/2778)*100% 2.61 times (7488/2975)*100% 2.52 times Increase Sales per Employee 7,264,000,000/36,000 £201,778 7,488,000,000/40,000 £187,200 Increase Liquidity Current Ratio 5,244/4014 1.31 times 5,712/5677 1.01 times Increase Quick Ratio (731+0+1528)/4014 0.56 times (604+0+1821)/5677 0.43 times Increase Gearing Gearing Ratio (304+1501+4)/60 30.15% (49+1721+78)/35 52.80% Decrease Interest Cover 304/50 6.08% 49/56 0.88% Increase Investment Dividend Payout 38/-8.6 -4.42 96/-5.1 -18.82 Increase Dividend Cover (-301-11)/96 -3.25 times (-53-11)/96 -0.67 times Decrease Dividend per Share - 5.6 - 14.1 Dividend Yield 38/5.6 6.79% 96/14.1 6.81% Decrease EPS - (8.6)p - (5.1)p Decrease P/E 5.6/-8.6 -0.65 14.1/-5.1 -2.76 Increase The link for 2014 Annual Statement is http://www.balfourbeatty.com/files/reports/2014/ar2014/ar2014.pdf. The link for 2013 Annual Statement is http://www.balfourbeatty.com/files/reports/2013/ar2013/ar2013_interactive.pdf. Appendix II – Computation of Break-Even Analysis Appendix III – Computation of Payback Period Payback Period Year 0 1 2 3 4 5 Investment 10,000,000           Inflows   2,340,000 2,340,000 2,340,000 2,340,000 640,000 payback period = 4 years + 0.273504 (To get 0.273504  640,000 / 2,340,000) = 4.2735 years Appendix IV – Computation of Accounting Rate of Return ARR Total Expected Profit = 15,750,000 Average Annual Profit = 2,250,000 Initial Investment = 10,000,000 ARR = 0.23 Note: To get 0.23 or 23%, divide 2,250,000 by 10,000,000 Appendix V – Computation of Net Present Value NPV Expected Annual Income PV Factor Present Value 2340000 x 0.9091 = 2,127,294 2340000 x 1.7355 = 4,061,070 2340000 x 2.4869 = 5,819,346 2340000 x 3.1699 = 7,417,566 2340000 x 3.7908 = 8,870,472 2340000 x 4.3553 = 10,191,402 1710000 x 4.8684 = 8,324,964 Present Value = 46,812,114 Initial Investment = 10,000,000 Net Present Value = 36,812,114 Note: Computation was based on 10% interest rate; NPV = Present Value – Initial Investment. Appendix VI – Computation of Internal Rate of Return IRR Year 2016 (10,000,000) 2017 2,340,000 2018 2,340,000 2019 2,340,000 2020 2,340,000 2021 2,340,000 2022 2,340,000 2023 1,710,000 IRR = 13.27% Note: Using the formula, =IRR(B5:B12) in Excel file. Read More