FENS310 ENGINEERING ECONOMICS
MODULE 2 PROJECT REPORT
Submitted by:
Aleyna Karağan
Eren Ata Pehlivan
Hira Elban
İrem Sertel
Naz Serter
Kadir Has University
Spring 2025
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FENS310 ENGINEERING ECONOMICS...............................................................1
MODULE2 PROJECT REPORT...........................................................................1
1. INTRODUCTION...........................................................................................2
2. DEVELOP YOUR OWN QUESTION..................................................................3
2.1 EXPLANING THE PROJECTS.....................................................................3
2.1.1 Project A..............................................................................................3
2.1.2 Project B..............................................................................................5
2.1.3 Project C..............................................................................................6
2.1.4 Project D..............................................................................................7
2.1.5 Project E..............................................................................................8
3. COMPARISION OF PROJECTS........................................................................9
3.1 Fit Projects for Each Criterias........................................................................9
3.2 Mutually Exclusivity for Best Alternatives......................................................10
3.3 Best Project Among Others..........................................................................10
4. DISCOUNT RATE OF 50%.............................................................................11
4.1 Discount rate of 50%..................................................................................11
5. CONCLUSION..............................................................................................12
6. REFERENCES..............................................................................................13
1. INTRODUCTION
This report examines a company’s five hypothetical projects (A, B,C, D and E). Although each
project has its own criteria the discount rate remains the same (15%). This project aims to find
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the most profitable project under different scenarios by applying financial methods. These
methods are NPV (net present value), IRR (internal rate of return) and payback method.
2. DEVELOP YOUR OWN QUESTION
2.1 EXPLANING THE PROJECTS
2.1.1 Project A
Project A is assigned as year x, which is 8 years and the cashflow is in the form of an annuity
with zero growth rate with the yearly cash inflow of 30,000 (figure 1,2). One of the two projects
who has the same initial investment is project A with an amount of 100,000. In these projects,
initial investment and further investments are shown as negative (-). NPV is defined by the
present value of an investment which is calculated by the reduction of cost from the accumulated
summation of future cash flows.1
Figure 1: table showing flows of cash for Project A.
Figure 2: graph showing flows of cash for Project A.
To calculate the NPV:3
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T
Ct
NPV =C 0+ ∑
t =1 ( 1+r )t
C 0=¿ Initial Invesment
t=¿Years (8)
r =¿Discount Rate (%15)
C t=¿ Yearly Cash Inflow
8
30,000
NPV =−100,000+ ∑ and this equals to = 34,619
1 ( 1.15 )8
So, because the answer came as 34,619 this is one of the projects who has positive NPV. Since it
is hard to do it on excel it has been done with the excel’s NPV formulation.
Excel’s NPV formulation:
¿ NPV ( rate ; value1 ) +C 0
rate=¿Discount Rate
value1=¿The Net Cash Flow from Year 1 to Ending Yea
C 0=¿Initial Invesment
¿ NPV ( 15 % ; 30,000 ; 30,000 ; 30,000 ; 30,000 ; 30,000 ; 30,000; 30,000 ; 30,000 )+ (−100,000 )
IRR is the discount rate that makes the NPV = 0.
Rule of IRR:
Invested into a project that earns more than what you'd give up by investing elsewhere.2,3
IRR is best when it is highest. 3
Calculating NPV with different discount rates and creating a graphic with using the NPV’s can
show the IRR by intersecting it at NPV =0 (figure 3) if there is any, if there is more than one
intersection point at NPV=0 it will be considered as multiple IRR. 1
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Figure 3: graph of NPV calculated at different discount rates for Project A.
T
Ct
NPV =C 0+ ∑ =0
t =1 ( 1+ IRR )t
IRR=¿ Discount Rate
Or using Excel formulation of IRR will give the solution,
¿ IRR ( values )
¿ IRR (−100,000 ; 30,000 ; 30,000 ;30,000 ; 30,000 ; 30,000 ; 30,000 ; 30,000 ; 30,000 )
to find if there is more than one IRR, can check
¿ IRR ( values ; guess )
guess=¿ The range of the discount rates to search for
¿ IRR (−100,000 ; 30,000 ; 30,000 ;30,000 ; 30,000 ; 30,000 ; 30,000 ; 30,000 ; 30,000 ;1000 % )
If the two formulations answer’s given above is different it will be considered as multiple IRRs.
In project A, IRR is +25% in both formulations. So, project A is one of the single IRR’s.
Payback Period is measured in time of an investment, considering its initial value, calculating
when accumulated inflow equals up to invested initial value. The lower payback period is the
better.
Excel Formulation:
=the year of last negative cumulative cashflow + ABS (last negative cumulative cashflow / the
first net cashflow after the last negative cumulative cash flow)
For Project A the payback period is 3,3.
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And this process applied the same with other projects.
2.1.2 Project B
Project B is assigned as year x, which is 8 years, and the cashflow is not in the form of an
annuity (figure 4). The other project who has the same initial investment is project B with an
amount of 100,000. It has an NPV of 2,144 so it has a positive NPV. Both of the IRR’s are +16%
so, it has single IRR (figure 5). It’s payback period is calculated as 4.73.
Figure 4: graph showing flows of cash for Project B.
Figure 5: graph of NPV calculated at different discount rates for Project B.
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2.1.3 Project C
Project C is assigned as year w, which is 11 years, and the cashflow is not in the form of an
annuity. It has an initial investment amount of 120,000 and also it has further investments in year
5 with the amount of 34,700 and with the amount of 54,600 (figure 6). It has an NPV of –56,804.
This makes project C the project that has negative NPV. Both IRRs are +3% (figure 7) so project
C is the one of the projects who has single IRR. It has a payback period of 10.01.
Figure 6: graph showing flows of cash for Project C.
Figure 7: graph of NPV calculated at different discount rates for Project C.
2.1.4 Project D
Project D is assigned as year y, which is 2 years. It has an initial investment amount of 150,000
and also it has further investment in year 2 and the amount of it is 198,000. The only cash inflow
the project has with the amount of 34,500 (figure 8). It has NPV of 248, this value makes project
D one of the projects who has positive NPV. Its IRR is calculated as +10% however when we
look for different investment rates (2nd IRR formulation with guess=1000%) we find another IRR
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value which is +20%. With this project D is the project that has multiple IRRs (figure 9). It’s
payback period is calculated as 0.43.
Figure 8: table showing flows of cash for Project D.
Figure 9: graph of NPV calculated at different discount rates for Project D.
2.1.5 Project E
Project E is assigned as year z, which is 5 years, and the cashflow is not the form of an annuity. It
has an initial investment amount of 10.000 (figure 10). It has an NPV value of 18,023 which
makes project E with positive NPV. Both of its IRRs are +36% that is why it has single IRR
(figure 11). It’s payback period is calculated as 2.76.
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Figure 10: graph showing flows of cash for Project E.
Figure 11: graph of NPV calculated at different discount rates for Project E.
3. COMPARISION OF PROJECTS
3.1 Fit Projects for Each Criterias
“Assume the company’s resources are sufficient to invest in all the projects simultaneously”:
In this section of the given project; it is given that, the company has the opportunity to invest
every reasonable projects. From the knowledge of NPV, it is reasonable to invest in a project if
the NPV is bigger than 0, which means in a way whether it would be small or big, profitable
projects fit to this criteria listed as:3
Project A, B, D and E.
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For the method of IRR, it is to be checked for the IRR to be bigger than MARR.1 In the
situations of when MARR is not given, r(discount rate) is to be accepted and used in the
comparision instead of MARR.3 Projects providing the criteria of IRR > r listed as:
Project A, B, D and E.
For the method of Payback, it is used for the calculations of the time period showing the time of
our investment being profitable.1 For this and only this, the shortest payback time is chosen.
Projects providing the criteria of the Payback being a short period listed as:
Project D and E.
Concludes that, already stated projects are fit to their criteriation of their methods.
3.2 Mutually Exclusivity for Best Alternatives
“Assuming the five projects are mutually exclusive projects”:
mutually exclusivity means, when one of the projects are chosen, the others are excluded(citation
ver).4
In this section of the project, it is expected to choose the best project for each of the methods,
which are, the biggest NPV, the biggest ratio of IRR, and the shortest period of Payback.1
According to the NPV method, reccomended project A has the highest NPV which is
34,619.65.
According to the IRR method, reccomended project E has the highest ratio being 36%.
According the the Payback method, reccomended project D has the shortest time: 0.43
years.
3.3 Best Project Among Others
“What is your final recommendation regarding the project to be selected among all, and why?”:
In this section of the project, it is expected to determine the best project amongh the others.
criterias are not just profitability or IRR or payback period. all of the criterias and methods
should be taken in account simultaneously. after all the calculations and comparision between
projects, best ones to choose are projects A and E.
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Comparision of their NPV’s, Project A(34,619.65) is bigger than Project E(18,023). Just by
looking at the profibility value of these two projects, A might seems like the best one, but,
concidering their IRR ratio, Project A(25%) is smaller than Project E(36%). now for payback
method, Project A has 3.3 years which is longer than project E(2.7 years).
For the comparion of two given projects, it is also acceptable to use PI method between Projects
A and E.3
NPV
PI ( profitability index)=
Investment
34,619.65
PI for Project A equals to: =0.34
100,000
18,023
PI for Project E equals to: = 0.9
20,000
PI of Project E is bigger than Project A’s.
As concluded, with a high value of revenue, high ratio of IRR, short period of Payback time, and
biggest value of PI; Project E is the best option for the company to invest to.
4. DISCOUNT RATE OF 50%
4.1 Discount rate of 50%
The chosen discount rate for the previous questions was 15%. And for this step it will be set to
50% of discount rate. So, the NPV’s will change depending onto new given discount rate which
is 50%. To calculate the new NPV’s again excel formula (figure 12):
¿ NPV ( i ; value 1 )+ C0
i , the discount rate, value 1 is the net cash flow from year 1 to ending year, C 0 is the
investment made at today (cash outflow).
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Figure 12: NPV formulas in Excel.
DISCOUNT 50%
RATE:
Project A Project Project Project Project
B C D E
NPV-> -42.341 -61.123 -96.531 -8.000 -5.728
Table 2: New NPV values when the discount rate is set to 50%.
When looked at table 2, all the NPVs are negative, meaning that, none of the project have any
profitability.1,3 Because of that, none of the projects are chosen to do any investments.
5. CONCLUSION
Five hypothetical investment projects(A, B, C, D and E) with different initial investment
requirements, capital needs, net present values (NPV), internal rates of return(IRR), and payback
periods are examined in this study. The findings reveal that while higher NPVs and IRRs signify
higher long-term profitability, shorter payback periods result in faster capital recovery. 1 The
study highlights how crucial it is to assess investment prospects using a range of financial
methodology.
6. REFERENCES
1- Chapter 5. Engineering Economy; William G. Sullivan, Elin M. Wicks, and C. Patrick
Koelling; Pearson Education; 17th Global Edition; 2020.
2- Ersan, Oguz. (2025, March 10). Module 2 Week 5 Presentation: Time Value of Money.
Kadir Has University.
3- Ersan, Oguz. (2025, March 17). Module 2 Week 6 Presentation: Evaluating a Project.
Kadir Has University.
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4- Ersan, Oguz. (2025, March 24). Module 2 Week 7 Presentation: Comparison and
selection among alternative projects. Kadir Has University.
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