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FIN622 GDB No. 01 Solution & Discussion Due Date Nov 13, 2015

FIN622 Corporate Finance GDB No. 01 Solution Fall 2015 Due Date Nov 13, 2015 

Company ABC has planned to extend its product line in manufacturing. Previously, the Company was manufacturing socks and gloves and now it has decided to manufacture jackets also. For this purpose new machinery is required. To acquire that particular machine, Company ABC has two different options. Presently, the interest rate in the market is 12% and cost of the machine is Rs.1 million.

 

Option 1: Pay 0.5 million today, 0.2 million after 2 years and 0.3 million after 3 years.

Option 2: Pay all today and get a credit of 10% of the cost of machine.

 

Requirement:

You are required to identify which option is suitable for Company ABC. Provide logical facts to support your decision.

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Replies to This Discussion

Please Discuss here about this GDB.Thanks
Our main purpose here discussion not just Solution
We are here with you hands in hands to facilitate your learning and do not appreciate the idea of copying or replicating solutions.

plz briefly samjhayen

.option 1 is best becoz it cost amount of rupees...871495 and option b cost after 10% discount is 900,000
formula whoo ha pv= fv/(1+r)n

please details 

m tariq ye ans btaya ha ap ny????arkya ye ans correct ha???

Tariq my answer for option 1 is 872972.85.85

I checked it twice. can u check yours and confirm the answer please.

Can anyone please clarify k humen sirf answer likhna hai steps ke sath aur uski explanation ya phir time value of money k baray me bi kuch likhna hai?

shuker hy kisi sy to match hua ..

 

I think hum  discount factor use kery hy.. yani we are referring to TVM.. mera ni kheyal k or koi explanation bunti ..

per, bun jay to pta koi ni .. 

mera to 872972.9498 ara hy .. mera kheyal hy meny itni he baar check b kerlia ..

mr.tariq iski samjh main nai ai ap ny kase ye answer nikala ha 

yar at the end, confusion lazmi perni hoti hy....

ab ye answer kesy ageya???

 

mera 872972.9498 ara hy ... ager teeno installments ki PV nikali jay .. ... ...

 then there is another thing ...

10% credit 

OR

10% discount ??

 

discount waly case me to 10% khatam hogeya, agar 10% credit hy to phir ye maaf to na hua,  agay chal k pay to kerna peray ga .. but this will be at ABC Company's own discretion k saal baad pay kerna hy ya 2 saal baad ya 3 saal baad etc etc. 

VERY CURIOUS!

10% credit is considered to be 10% discount because slide no. 14 to 16 me same question hai to usme sir ne 10% discount consider krke amount kam krdi thi.

itna confusion mat kro create Paanda. option 1 better hai bs aur uski calculation aur explanation krdo same way jaise in slides me hui. 

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