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.
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.
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:
Please also read the following instructions carefully before attempting the assignment
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
Use the font style “Times New Roman or Arial” and font size “12”.
It is advised to compose your document preferably in MS-Word.
You may also compose your assignment in Open Office format.
Use black and blue font colors only.
Rules for Marking
Please note that your assignment will not be graded or graded as Zero (0) if:
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
It is cheated or copied from other students, internet, books, journals etc.
Note related to load shedding: Please be proactive
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.
For your convenience activity schedule has already been uploaded on VULMS for the
current semester, therefore no excuse will be entertained after due date of assignments,
quizzes or GDBs.