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SEMESTER Spring 2016
Corporate Finance (FIN622)
Assignment No. 1
Due Date: 18-May-2016 Marks: 10
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
After attempting this assignment, students will be able to learn the application of
NPV method for evaluation of an investment project.
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%.
Based upon above given information, calculate NPV to determine whether SPCL should
acquire this machinery or not.
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This Content Originally Published by a member of VU Students.
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
Apki FIN722. it's for MSBA.... Advance Corporate Finance
BS or Masters ki Fin622 hai... Corporate Finance.
Asif bhai thora sa idea dain koi formula ya kuch hints wagira dain day.
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.
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:
|Net Cash Inflow||$3,411||$4,070||$5,824||$2,065|
|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
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
Please Discuss here about this assignment.Thanks
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