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FIN722 Corporate Finance Assignment No 01 Solution & Discussion Due Date:16-May-2016

FIN722 Corporate Finance Assignment No 01 Solution & Discussion Due Date:16-May-2016 

Case: Beverages Limited is considering expansion of its business operations because of rise in demand of its beverage products. A new plant has been decided to install by the company that costs Rs. 1,650,000. Moreover, net working capital at start of project is Rs. 475,000. This investment in networking capital will be recovered at the end of useful life of plant which is estimated to be 5 years. Plant’s salvage value is estimated to be Rs. 325,000. Following are the Pre-tax cash inflows which are expected to be generated at end of each year by this new installation: Yr. 1 Yr. 2 Yr. 3 Yr. 4 Yr. 5 Cash Inflows Rs. 525,000 Rs. 610,000 Rs. 675,000 Rs. 725,000 Rs. 800,000 Depreciation method adopted by company is straight line. Moreover, company’s targeted debt to equity ratio is 40:60 with cost of equity 14% and before tax cost of debt 12%. Company falls in tax bracket of 35%. Required: Based upon above provided information, you are required to: 1) Calculate Weighted Average Cost of Capital (WACC). 2) Calculate Net Present Value (NPV) of the project. 3) Calculate Internal Rate of Return (IRR) by using interpolation formula. 4) Analyze whether the project is feasible to undertake. Provide conceptual rationale in support of your answer.

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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.

assignment is done but little bit conflict in answers. When we find out IRR which is much difficult to find but when we verify IRR the result shows great difference. hope so today that problem solved :)  

Tamur Iqbal kindly share the solution i am worried about the IRR, how to find this

IRR formula is 

IRR = Lower discount Rate + Difference between the two discount rates x (NPV at lower discounted rate / absolute difference between the NPVs of the two discount rates)

and hope so you already find out NPVs on two different rates.

kidnly share the solution bro dont worry about copy paste assignment please

which rate we can use for the calculation of NPV , in the assignment discount rate is not given>>>>?

initial investment for NPV ??????????? where is in the assignment.....

WACC  =  [{Weight of Equity x Cost of Equity} + {Weight of Debt x Cost of Debt after Tax}]

               =       [{0.60 x 14%} + {0.40 x 12% (1 – 0.35)}]

               =       [{8.40%           + 0.40 x 7.8%}]

               =       [8.40% + 3.12%]

WACC       =       11.52%

IRR answer is 24.30% 

Net Present Value

15,374.35

at 24%

#tamur.... ur answer of NPV with after tax or before tax

question ma pre tax use hoa ha bahi

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