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FIN622 - Corporate Finance

PROBLEM:
ABC Company is considering the acquisition of a machine to improve its production. The company has to make a choice between two types of machine A and B. Each machine will have a 4-year life with no salvage value.
Cost of capital of the firm is 14%. Initial investments required to purchase and install the machines A and B, are PKR 28,700 and PKR 27,050 respectively. Machine A will generate an inflow of PKR 10,000 each year while Machine B is expected to generate cash inflows in the following manner.


Year          Cash Inflows (PKR)
1               11,000
2               10,000
3               9,000
4                8,000


Required:


Calculate NPV and IRR for both options. Which machine should be preferred and why?

Note:
For calculating IRR you are required to use “Trial and Error Method” along with “Interpolation Technique/Formula”. In this particular regard, you are advised to consult PPT slideshow “Finding IRR is no more difficult” uploaded in the lesson contents of Lesson # 10.

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Replies to This Discussion

Intersting

1. NPV

2. IRR 

if we find out NPV than IRR is outometice find it. and assignment complate.

Itni Easy Assignment

i need serious students to discuss study related issues specially finance related to increase knowledge of each other. are you??

Sure... SHARIQ

HMM good! very nice Assignment ...

I am 100% Serious

it is very interesting

m also serious 200% guyzzz

cost of capital 14 % he kia ye(K)he

Cost if Capital wo cost hoti hai jo aap ko capital (equity + debt) ke against bear kerni parti hai, jaisay equity ki cost dividend hai or debt ki interest.

tu is me hum jo NPV nikalye gye wo cost of capital yani 14 % ko discount rate lye gye ya ni

Exactly....

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