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# Assignment # 1 Corporate Finance (FIN 622) Spring 2016 Due Date 18th May, 2016

SEMESTER Spring 2016
Corporate Finance (FIN622)
Assignment No. 1
Due Date: 18-May-2016 Marks: 10
Objectives:
 To make the students learn the application of capital budgeting analysis.
 To make the students develop skills to determine Net Present Value (NPV) of an
investment project.
Learning outcomes:
 After attempting this assignment, students will be able to learn the application of
NPV method for evaluation of an investment project.
Question:
The Saucer Pasta Company Limited (SPCL) is specialized in making wide range of
pastas. It has recently spent Rs.30,000 on market research and found that the demand of
pasta is increasing in the market. That is why company has decided to acquire new
machinery for increasing its production capacity. This machinery will cost Rs.50,000,
however, it will enable the company to increase its sales by Rs.60,000 per year for the
next 5 years. Variable cost before taxes will be Rs.20,000 in first year and expected to
increase by 10% per year afterwards. At the end of fifth year, it is projected that
machinery will no more be operational and its salvage value before taxes will be Rs.2,000.
Company has to pay 30% as corporate tax and it is assumed that taxes will be paid in the
same year of cash flow occurring. If the machinery is acquired, depreciation for tax
reporting purposes would be based on straight line method over its useful life. Company’s
cost of capital will be 10%.
Requirement:
Based upon above given information, calculate NPV to determine whether SPCL should
acquire this machinery or not.
IMPORTANT:
Grace period of extra 24 hours after the due date is usually available to overcome
uploading difficulties. This extra time should only be used to meet the emergencies and
above mentioned due dates should always be treated as final to avoid any inconvenience.
IMPORTANT INSTRUCTIONS
 Take help from internet for collecting the information.
 Carefully watch relevant lectures and consult the relevant material from handouts
along with recommended books.
 Attempt the assignment by yourself and it will be entertained positively.
Other Important Instructions:
solution.
 Make sure that you upload the solution file before the due date. No assignment will
be accepted through e-mail after due date once the solution has been uploaded by the
instructor.
Formatting guidelines:
 Use the font style “Times New Roman or Arial” and font size “12”.
 You may also compose your assignment in Open Office format.
 Use black and blue font colors only.
Rules for Marking
 It has been submitted after due date
 The file you uploaded does not open or is corrupt
 It is in any format other than MS-Word or Open Office; e.g. Excel, PowerPoint, PDF
etc.
 It is cheated or copied from other students, internet, books, journals etc.
Dear students!
As you know that semester activities have started and load shedding problem is also
prevailing in our country now a days. Keeping in view the fact, It is requested to all of
you to manage to post your activities as early as possible and don’t wait for the due date.
current semester, therefore no excuse will be entertained after due date of assignments,
quizzes or GDBs.

Views: 2737

Attachments:

### Replies to This Discussion

start karain???

Lesson # 8-11 will cover this assignment ... i have to study these lessons first

is the assignment different for different students? i didn't get this one.

Ni subke same he assignment hoge. Apke q different ha. online aain to send karain mujhy. Its impossible

plz look into this. are u from a different course? i'm doing MSBA

Attachments:

Apki FIN722. it's for MSBA.... Advance Corporate Finance

BS or Masters ki Fin622 hai... Corporate Finance.

With the help of slides of the Video lectures we can solve assignment easily so understand the Lec. 8 to 11 1st..

Asif bhai thora sa idea dain koi formula ya kuch hints wagira dain day.

Helping material:

An initial investment of \$8,320 thousand on plant and machinery is expected to generate cash inflows of \$3,411 thousand, \$4,070 thousand, \$5,824 thousand and \$2,065 thousand at the end of first, second, third and fourth year respectively. At the end of the fourth year, the machinery will be sold for \$900 thousand. Calculate the net present value of the investment if the discount rate is 18%. Round your answer to nearest thousand dollars.

Solution

PV Factors:
Year 1 = 1 ÷ (1 + 18%)^1 ≈ 0.8475
Year 2 = 1 ÷ (1 + 18%)^2 ≈ 0.7182
Year 3 = 1 ÷ (1 + 18%)^3 ≈ 0.6086
Year 4 = 1 ÷ (1 + 18%)^4 ≈ 0.5158

The rest of the calculation is summarized below:

 Year 1 2 3 4 Net Cash Inflow \$3,411 \$4,070 \$5,824 \$2,065 Salvage Value 900 Total Cash Inflow \$3,411 \$4,070 \$5,824 \$2,965 × Present Value Factor 0.8475 0.7182 0.6086 0.5158 Present Value of Cash Flows \$2,890.68 \$2,923.01 \$3,544.67 \$1,529.31 Total PV of Cash Inflows \$10,888 − Initial Investment − 8,320 Net Present Value \$2,568 thousand

ni ya theak ni ha

sir,
dear there is nothing in handout. i watch 2 video lect, there is different in examples given in video lect and in handout not a single example relate to this assignment as well as vedio lect. is there any example in handout or any written form as i face problem in understanding the example in vedio

asif Gujranwala

Our main purpose here discussion not just Solution

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