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The Case:
Mr. Waseem wants to start “Printing on Packages” business. He wants to start this business with 4 printing machines. He estimates that the required investment for the business is Rs. 40 Million. He projects that revenue (before tax and depreciation) from the business will be Rs.8 Million for the first year and it will keep on growing at a rate of 5.5% annually till the 10th year.
Some other information regarding the project is as follows:
• Annual depreciation will be Rs. 4 Million under the straight line method.
• Cost of capital is 10% while the rate of tax is 33%.
Suppose you are running a financial consultancy firm, Mr. Waseem wants to get his project evaluated by your firm. You have to suggest Mr. Waseem about the feasibility of the project after performing different techniques of financial analysis to start a new project.

Requirement:
Keeping your task into consideration, provide answers to the following:
1. Calculate net cash flows for 10 years. (10 Marks)
2. Evaluate the project by using the following capital budgeting techniques:
   a. Payback Period (The desired payback period is 4.5 years)          (04 Marks)
   b. Net Present Value (10 Marks)
   c. Profitability Index (03 Marks)
3. Is there any contradiction among the results of above used techniques? What would be your final recommendation regarding the acceptance/rejection of the project? Support your recommendation with financial rationale. (03 Marks)

Special Note: Complete calculations are required for Part (1) and Part (2). Incomplete calculations will result in loss of marks.

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Replies to This Discussion

No idea on how to solve the assignment...Everything is being mixed up in the mind....

Seniors please help......

Waiting.....

Finding , finding, finding and finding

Finding Falcon :p lol

samra tariq sis, No need to get tense. Try to study the handbook and solve it. Solution bhi ban jaye ga. Just relax. 

mujhy tu ye samajh nhe aa raha k start kahan sy krun??????
first part sy???pr kesy....handbook men itna kuch hy k sb mix ho rha hy....

can you please guide Fighting Falcon Shakeel bro. 
Regards...


hello sis , what about asignment file for final re check ?

abhi financiial accounting ka assignment submit hoa nahi k aik or agaya falcon bhaiya hain na hamari help k liye

Please, start  

Investment for the business is Rs. 40 Million.

He projects that revenue (before tax and depreciation) from the business will be Rs.8 Million for the first year

 It will keep on growing at a rate of 5.5% annually till the 10th year.

  Annual depreciation will be Rs. 4 Million under the straight line method.(4x10)=40M

 Cost of capital is 10% while the rate of tax is 33%.

Please discuss and share your ideas.....there is not much time...the closing date is just after 3 days....
Please discuss and help....
I have done some of the parts.....will share the idea shortly.....
Regards....

@ M. Asif why are you multiplying 4 million by 10, the depreciation is already given.....
Multiplying 4 million by 10 will make it 40 million which is exactly equal to the investment....
Please explain and remove my confusion......
Regards...

Friends, i think we should study lesson number 25 to 29 with concentration to discuss this assignment.

Along with we should have solid understanding of calculating the net income after deducting depreciation, income tax and cost of capital.

Best of luck. Let me also refresh my knowledge because i studied this subject two years ago and remained away from it.

COST OF CAPITAL
•When we say that the required return on an investment is, say, 10% we mean that the investment will have a positive NPV only if its return exceeds 10%.
•Alternatively, the firm must earn 10% on the investment just to compensate its investors for the use of the capital needed to finance the project.
•Thus, 10% is the cost of capital associated with the investment.

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