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Assignment No.1 Marks: 10
Due Date: November 23, 2015
ABC Limited is a company that deals in manufacturing chemical. There is an opportunity to
manufacture a new chemical for a Textile Industry. For this, the company must install a plant with
estimated life of 5 years, costing Rs.2.5 million.
For technical aspect of the project, a consultant would be hired at a cost of Rs.60,000. However, if
the project does not turn out financially feasible, his contract would be cancelled by paying him
Rs.20,000. At the end of first year, other acquisition cost would be Rs.40,000.
Working capital requirement in the beginning would be Rs.350,000 and Rs.100,000 in the next year.
All the working capital would be recovered at the end of fifth year. Due to technological
obsolescence the plant will not be useable after fifth year and the salvage value is estimated around
Cash flow emerging from the additional sales would be Rs.650,000 in first year, Rs.600,000 in
second year, Rs.550,000 in third year, Rs.750,000 in fourth and last year.
The company shall depreciate the asset on straight line over its useful life. Tax rate is 20%. Company
requires 10% rate of return on such projects.
Following are some assumptions:
1. Taxes are paid in the same year of benefit occurring.
2. Consultant and Other costs are supposed to occur at the end of first year.
3. Inflation is assumed at 0%
You are required to evaluate the project on the basis of Net Present Value (NPV) whether it would
undertake or not.
Note: Provide all calculations, they carry marks.
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Replies to This Discussion

wait... answer kya aya??

benefit after tax kesa ?

hogya h rehny den .....

df kesa krna h?

sumaiman bhai first year ki pv kaya ayi ha coz baki sb easy ha yahi complicated ha . first year mein 100000 working capital le rahay ho ap?

yes 100000 lena hy working cap.

1st year PV = 4672774.4

df = 1/(1+r)t

r = 10%

4672774.4 ye kaya likha ha bhai ye 4.6 million kaha se ho gai.
650000 ha cash flow less 470000 depreci less cost phir 20% tax nikal k dep 470000 ad kar dain ga aur working capital less kar k pv nikal lain ga yahi method ha ya kisi aur tara kar rahay ho ap?

oho sorry yara, typing error ... 467277.4 hy

aur betaya nai baki method kaya use kia mera difrense aa raha ha

CF1 - Dep x Tax rate + Dep = after tax cashflow

ye ker k 614000 aya
iss me sy next year wala working cap nikal do

jo amount aygi uspy DF lagao 10%
answer will be 467277.4

bhai dep nikalty huey konsi values put ki h
apny cost-residual value/estimated life ma

estimated 5 years h bki knsi value put ki h


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