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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

Please Discuss here about this assignment.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.

Tariq bhai koi idea share kry edr 

NPV = (542164.2)

Not feasible.

Plz can anybody confirm??

sulaiman bhai koi calculation discuss karein phir difrence clear ho ga i think mistake ha abhi .first year mein kaya kaya le rahay ho app working capital,cost and consultant fee aur tax kitni amount per le rahay ho

consultant fee ki mujay confusion ha mein 60000 le raha tha but slide mein sir n ek example di ha jis mein total fee se commited fee less ki ha.agar koi idea ha is ka to share karein

60000 fee main sy 20000 pay kerna he hy ... project feasible ho ya naho yani 20000 to pay kerny he hy .. 20000 sunk cost hogei yani irrelevant ya committed, reminder 40000 ko use kery gy,kyu k wo project koundertake kerny py lazmi lgy gi. 

Hope u understood.

can u tell me which slide no. and lec no. did sir mention this formula of total fee?

in lec 9 slide # 18, he mentioned that consultant fee and acquisition cost will not be included in the calculation. so i'm confused...

And because i didn't include both of these so my NPV = (229728.2)

but now its negative so i duno how to adjust the consultant fee in the end...

its in lec # 8 (slide # 6) and then again in lec # 10 (slide # 1)

** lec # 9 (slide # 18) is where he is calculating the cashflow for the project during the years, consultant's fee is something that is already treated in the beginning (in Year "0") cashflow is starting from Year "1".**  


hope u understood. 

yara sub kuch similar to the slides kia hy meny .. 

sub sy pehly total cost or working capital hy, usky baad next year main remaining working capital, consultant ki relevant fee or other acquisition cost .... final year main salvage value or recovered working capital. 

Depreciation calculate kerlo jo meri 470000 ai hy or usky baad After Tax Cash flow. Baki woi DF lga k PV hazir .. jo k meri (542164.2) ai hy same slides waly method sy ..

guys depreciation tk krny k bad , net benefit tax purpose kesa krna h?

Benefit - Depreciation = Net Benefit Tax Purpose



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